The mushrooming investor presence in the country’s realty market has for long fuelled unlikely speculation in residential prices. Latest figures now show that 52% of the new realty stock in India is held by investors, a steep leap from 22% investor presence in 2009.
The figures, compiled by the real estate research agency Liases Foras, is the average percentage of the investor presence in the six cities such as Mumbai Metropolitan Region (MMR), National Capital Region, Chennai, Hyderabad, Bangalore and Pune.
Mr Pankaj Kapoor, the CEO of Liases Foras points out that the exorbitant prices have driven away end users. At the same time, when a sizable number of units in the project are sold to investors through pre-launches and pre-sales, developers have to artificially jack up the rates so as to make it a profitable proposition for investors.
Investors always put money for future appreciation. The developer has to show them that there is profit in the project and so he has to keep increasing the prices even in absence of sales. In 2009, investors wanted to exit from the property market having lost their money in the share market. With investors on the selling spree then, prices had dropped significantly,” said Kapoor.
With more and more builders looking at raising money through the IPO route over the last few years, pricing of flats have been purely valuation-driven. These valuations are greatly inflated in order to raise money from investors with little thought given to actual sales. An earlier report by Liases Foras found that majority of the sales in MMR came from projects “having suspiciously high pre-launch sales feared to be artificial in nature. Such stocks may have been transferred to the investors and remains likely to resurface in the market”. It goes on to mention that the market looks extremely risky on exclusion of such projects for arriving at the actual sales figures.