Real estate developers are ramping up property prices in order to get higher valuation for utilising public money as many of them are planning to enter the capital market to raise funds.
“It is all a game plan because Initial Public Offerings (IPOs) are lined up. Increase in the prices provides them (the developers) with a higher valuation. All those builders who have not yet been able to capitalise on the booming stock market are jacking up the prices between 10%-15%,” said Pankaj Kapoor, founder and chief executive, Liases Foras, a property research firm.
From October 2008 and during the slowdown, all developers had to reduce property prices by as much as 30%. This move helped in some recovery and brought back a little momentum in realty. To take the benefit of the recovery, initially developers hiked prices by 5%-10% to signal the bottom and get potential buyers to stop waiting for a further decline.
“As the builders saw demand coming in the market, they hiked up the prices once again for higher valuation and they have killed the market,” Kapoor said.
According to market sources, Lodha Developers Ltd has increased property prices by 10% because it sees the company to be valued at about Rs2,500 crore. Nitesh Estates, another developer based in Bengaluru is expected to file draft red herring prospectus to raise Rs550 crore while Sahara Prime City—the real estate unit of Sahara Group is also planning to raise around Rs9, 800 crore and hence has increased the property prices by same percentage. Orbit Corp Ltd and Indiabulls Real Estate Ltd are also following the same footsteps. All the realty companies are set to raise Rs13,500 crore from markets through IPOs.