There are two things that drive property prices. One is demand and second in artificial scarcity. While there is very little that can be done about demand, however artificial scarcity created by builders is something that is hurting buyers the most. It may be noted that most builders are holding on to their inventories despite slowing sales thereby creating artificial scarcity in the market. While slowing sales impacts their cash flows until now they were able to arrange for external liquidity through banks. However, most of them are facing difficulty in making repayments as cash flows from their existing projects have dried due to sky rocketing prices. Further, they are also facing difficulties in getting fresh loans since banks have tightened their screws in lending to the realty sector. Also, restructuring of bank loans has been ruled out by RBI. Thus, the temporary relief option is also no longer available.

As a result, the only option in the hands of builders is to reduce prices. If not, they may default on their bank loans. As such, most real estate developers are in a precarious situation now. Under the greed to acquire land banks most of them have leveraged their balance sheets. And in such an environment where sales are not taking place due to rising prices servicing interest costs has become a matter of grave concern. With no external form of liquidity available to them we feel reducing property prices is the only option in their hands now.