Faced with falling residential demand, they woo home buyers with cars, fitouts, parking discounts.
The Bangalore property market has entered the wooing phase with plot and home buyers being offered gratis cars, lifestyle accessories and clubhouse memberships as inducement.
People familiar with property market say this initiative, being led mainly by property marketing companies and a few investors or speculators, is unhealthy. They are doing this as they have put their money into properties at overheated locations and are now desperate to exit.
According to Shivram Malakala, executive director, Habitat Ventures, “In the Bangalore market, there are two streams at work. One is by the developers, where it is typically reduced down-payments to book, with balance payable on possession, or offer of add-ons such as home improvements, free interiors or free club membership.” This is typically provided by the developer directly or along with a financial institution.
“The second stream is that of the marketing companies, which market projects developed by third party builders and developers, offering freebies. Invariably, in these projects, a customer can buy without the freebies at a lower price as well.” One “concern” with this model is that after the sale is concluded the relationship is directly between the purchaser and the developer, with the marketing company with whom the sale was concluded being out of the picture.
“When looked at closely, these incentives do not have any significant monetary value. Rather, they are psychological encouragement put in place to catalyse the project’s off-take. Gratis offered by investors or speculators is valued around 12-14 per cent of the flat or plot price,” said Anuj Puri, country head, Jones Lang LaSalle Meghraj.
Shveta Jain, associate director, residential services, Cushman & Wakefield-India said, “In the present market scenario in Bangalore wherein supply has clearly outstripped demand, freebies of different kinds are essentially being used by different developers as a marketing tool to augment the sale of their products.”
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“Most of the developers in Bangalore are offering to bear the pre-EMI cost. Some are also offering fitted out kitchens and discounts on parking space. But the big discounts have been offered by marketing agencies. To name one, Orange Properties, a marketing company, promises a free car for a property of a certain value and more,” she added.
Among the developer community there is no such thing as a free lunch, and this holds true in the present real estate scenario as well. In a period where ‘subsidised lunches’ are being offered by speculators, the developers are offering add-ons. Developers are just offering rate discounts but not below the base cost which includes the cost of land and construction.
Property developers, who are in the business for the last 10 years, are delaying new project launches and are only offering 3-5 per cent discounts on property values or free fit-outs.
“This trend is more product-specific than city specific and can be witnessed across most of the prominent Tier 1 and Tier 2 Indian cities. This strategy is not bound by geographical limits and it would be safe to presume that this is an international trend during the trough in business,” observed Jain.
This practice of offering freebies is not unique to Bangalore, but is also practiced in other metros in less-preferred locations and more prominent in Tier II cities.
“This phenomenon exists at some level or the other all over the world, but probably not with the lack of finesse and reservations that exist in India’s current real estate scenario,” added Puri.