Substantial decline in prices in some key cities have failed to translate into business for the real estate sector. And that’s probably because people are still not convinced that this is the right time to buy a house. The spectre of pink slips is also looming large, forcing them to put off buying.

There are some early signs of consumer demand rising with mortgage rates falling to 10.5 per cent against 12 per cent in December 2008, but potential borrowers prefer to wait for asset prices to stabilise.

According to a research report on the Indian real estate sector by Macquarie Research, a unit of Macquarie Group, residential volumes have dropped by 25 to 30 per cent year-on-year across major cities, with consumers expecting prices to come down during 2009. And the segment that has been impacted the most is the mid-to-high end in fringe locations where there is potential for future supply.

Take the case of 30-year-old Aditya Agarwal, who earns a monthly salary of Rs 1 lakh and was hunting for a house in December last year. “I stopped looking for a house, because I am told that my company may opt for another round of layoffs next month. In such a situation, my wife could be burdened with a home loan. So I have decided to postpone the purchase,” he said. Aditya works for an animation studio, which has been laying off employees at regular intervals over the past 4-5 months.

“People are not buying flats. They are expecting a further fall in property prices and interest rates,” Hari Prakash Pandey, deputy general manager, finance, HDIL, told FC Estate.

A Mumbai-based radiologist Shilpa Sukhatankar said, “There are transparency issues when it comes to pricing. There is no clarity between built-up and super built up areas. On various occasions during negotiations, I found that the papers were not clear. The rates are still inflated, and in case the rates are affordable, the location is not good.”

Though developers have reduced prices in peripheral areas they continue to hold the pricelinein some pockets within the city limits.

Property consultant Jones Lang Lasalle Meghraj says that in Mumbai, transactions have slowed down considerably. There has been a correction of 30-40 per cent in the secondary market of the city, and 10-15 per cent in the primary market. In the suburbs, it’s a mixed scenario — developers of some projects are holding on, while others have slashed prices by 10-15 per cent.

In New Delhi, prices in the secondary residential market have come down by 7-8 per cent, with a further reduction of 3-4 per cent happening during actual negotiations. However, developers selling in the primary market largely refuse to budge from their previous rates. The highest incidents of price corrections have been in the suburban parts of the national capital region (NCR).

IT city Bangalore fares no better. Buyers in the primary market saw a ray of hope when Sobha Developers slashed property prices by 8 per cent a couple of months ago. The company reported a 10 per cent surge in sales. No other developer has overtly announced any reduction, though price cuts do take place during negotiations. Overall, developers have seen a 70-75 per cent drop in sales.

In Pune, price reductions are still largely a prerogative of individual developers. It has been observed that those who have managed to sell 85 per cent or more flats in their projects have not reduced prices.

In Kolkata, there has been no softening of prices in the primary market. Even negotiations with the definite intent to buy make no impact. Most transactions are now happening in the secondary market, where a substantial rate drop of 20 per cent is evident. In this context, areas such as Rajarhat have recorded the steepest fall in prices.

There has been no official fall in prices in Chennai. However, one must bear in mind that Chennai is traditionally an end-user driven market, with probably the lowest speculation levels in the country. It has, therefore, been insulated from the market crash, since end users tend to look at their buys as long-term assets and not as trading chips. Developers have not cut prices for houses priced Rs 40 lakh and above, since at least 30 per cent of their flats in many projects have already been sold and they don’t want to antagonise earlier buyers by cutting prices.

Banks have tightened their lending criteria but still have the funds to lend at attractive spreads. Though banks may appear enthusiastic about mortgage lending to consumers, background checks on borrowers have become rigorous. Traditionally, Indian borrowers have been very reluctant on default on repayments.

“Medium and long-term rates, both for lending and deposits, are likely to remain at present levels as liquidity in medium term would remain tight going forward mainly due to difficulty in raising funds from other sources such as capital market, mutual fund, commercial papers and ECBs,” George Joseph, chairman and managing director, Syndicate Bank, said.

Property consultants say that even though it may sound cliched, wait-and-watch is the only option for the real estate sector. “It’s a question of consumer confidence. People will start buying only when they are sure of an economic revival and job security. Before that, there won’t be any significant movement in terms of consumer spending,” says Bangalore-based real estate consultant Nayan Nair.

(With inputs from other centers) shilpashree@mydigitalfc.com