It is a phenomenon that has no name. Not as yet. But the dark clouds symbolise the crisis enveloping the real estate sector. The symptoms of a slowdown and forebodings of a correction ahead are easy to spot.

It is not just in the slide of real estate rates but, more importantly, the aggravation caused by the absence of buyers. And buyers, hurting from unreal price rise and hit by the 35 per cent spiral in cost of home loans--from 7.5 per cent or Rs 806 per lakh equated monthly instalment (EMI) in 2005 to 12 per cent or Rs 1,101 per lakh in 2008-have stayed away.

So, desperate, builders are throwing in a range of goodies to push through sales. From offering luxury sedans to plots of land, EMI holidays to sweetheart deals, like free furnishings, builders are going all the distance to lure elusive buyers and boost the stagnant property market.

Stung by inflation, rising interest rates and ballooning cost of funding, home buyers have stayed away from the market. Yes, it does seem like a good time to take the bait, but buyers are clearly waiting for more than just freebies. They are waiting for real gains, real drop in prices which, many believe, are round the corner.

As big builders unveil their sop opera, smaller builders trapped between high interest rates and lack of funding are looking for white knights.

Be it a small residential project in Bangalore or a plush villa of Unitech in Gurgaon, all are willing to negotiate on their rack rates. Prices in Gurgaon, says Rohtas Goel of Omaxe, have come down from Rs 4,500 per sq ft last year to Rs 3,000 per sq ft this year.

A builder in Hyderabad's Bandlaguda area has reduced prices thrice already this year for a property it is developing. Orbit Corporation, a Mumbai-based developer, is offering a 15 per cent discount on its residential projects in central Mumbai.

Everything is negotiable. For instance, in Mumbai, Nahar Builders is giving an EMI holiday to buyers. So buyers have to book a property by paying 20 per cent upfront and the developer helps the buyer get a loan approval.

However, the borrower does not start paying EMIs till possession. Ansal API is giving this benefit to buyers in its Mohali project. In the interim period, the loan is serviced by the developer.

While schemes like these are attractive, they work well in areas where there is oversupply, which is a rarity in Mumbai-except in some pockets. Nirmal Lifestyle, a big developer in central suburb Mulund, is offering a waiver on stamp duty and registration, which is typically 5 per cent of the value of the property.
While tangible benefits are welcome, gimmicks are huge in some markets. Orange Properties, for instance, which markets projects of other developers, till recently, was offering a Maruti SX4 free with a flat on Bannerghata Road, Bangalore, costing Rs 42 lakh.

This adds up to a benefit of roughly 15 per cent. Currently, the firm is marketing plots of land in European Township near Budhigere Cross Road, off the new airport at Devenahalli.

The company is offering a Maruti Swift with 40X60 sq ft plot of land which will cost Rs 33 lakh, without registration and stamp duty. Some other developers in Thane are offering land with a promise to buy it back in three years. Of course, the land is 85 km from Mumbai.

Soaring costs have forced some builders to sell projects, as a going concern, with all the permissions. For instance, Omaxe has bought Triveni Group's 10 lakh sq ft residential project in Faridabad for Rs 80 crore.

Rohtas Goel, CMD of Omaxe, says the company is in talks with several such builders to buy their projects. Explaining the phenomenon, he says: "The construction industry's honeymoon period is clearly over and profits of 35-40 per cent will not be possible any more as speculators are out of the market."

With home loan rates rising more than 400 basis points since January 2006 and property prices mounting by 50-100 per cent in most of the locations, builders are sitting on a pile of inventory. Also, they are too cash strapped to hold on to high prices for long.

Says K.G. Mantri, senior vice-president, Man Group: "The real estate market is headed for a shakeout. Small builders, who were heavily leveraged, will go out of business as cost of capital has shot up significantly. Those who had lined up projects of Rs 1,000 crore with an initial investment of Rs 100 crore will not be able to survive as funds are not easily available."

Developers across the board are facing the twin menace of falling demand and soaring costs. For instance, Fitch Ratings has downgraded Parsvnath Developers' debt rating.

The rating agency has also downgraded the developer's long-term debt and long-term bank loan ratings. The real estate company will find it difficult to reduce debt on its books, and profits are expected to come down sharply.