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Real estate developers have made it clear — they cannot reduce residential property prices, even if that means sitting on high inventories in a slow market.
On Thursday, Reserve Bank of India (RBI) Governor Raghuram Rajan asked real estate developers with high inventories to cut prices. Rajan's comment was in reference to State Bank of India chairman Arundhati Bhattacharya seeking its nod for teaser home loans, a product that was introduced in 2008 after the global downturn, to push up demand in the sector.
Real estate association Credai President Getamber Anand ruled out any reduction in the residential prices, saying the rising input costs do not give any leeway to developers to do so. Commenting on Rajan’s statement, Credai said a substantial reduction in prices has already happened across the country and any further decrease would be a deterrent for the growth of the sector, which contributes to the economy and employment to a large extent.
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According to sectoral experts, the input costs — construction material, labour — have increased by at least 20-30 per cent, depending upon the location, over the past couple of years. “Developers are not going for direct price cuts — in square feet terms, but have been offering discounts and other freebies to lure buyers. But, even this has not helped attract many,” a consultant based in Gurgaon said.
Consultants, too, think there is no case for a major correction. Knight Frank Chairman Shishir Baijal said, “Input costs, including that of land, have gone up over the past few years. There is no scope for a serious correction in prices.”
Data from real estate consultancy firm Liases Foras shows the inventory level across all major cities stood at 41 months, up 24 per cent at the end of the June quarter compared with the previous year. An efficient market maintains eight to 12 months of inventory.
“The onus is upon the state government to rationalise taxes, ready reckoner rates and streamline the approval process to bring down property prices and provide relief to buyers. A rate cut in the home loans is the need of the hour to relive the home buyer of the huge burden of mounting equated monthly instalment,” Credai said.
Last week, the country’s largest real estate player, DLF, said it would complete ongoing projects covering 20 million sq ft over the next 12-18 months to create finished stocks and achieve better realisation when housing demand picks up, rather than focusing on new launches.
For the past few years, developers have been hurt by declining sales coupled with liquidity crunch and high inventory levels. Despite all this, prices have not come down drastically with only minor dip seen in the National Capital Region, Chennai, Bengaluru and Mumbai Metropolitan Region ranging from one per cent to three per cent at the end of June quarter compared to the previous year, according to Liases Foras. While in cities such as Pune and Hyderabad, the prices went up during the same period.
Delivery delays, change in structure/designs of a project and developers going back on their promises have been quite rampant across the sector over the past few years. These issues have given rise to a new form of consumer activism on the streets and in the courts. Developers have been offering discounts to push sales, but there is less activity on the ground.
Experts point out the sales in the sector is still happening with a right mix of price, product and location besides a brand name.
