As buyers continue to be reluctant to purchase residential properties, developers are planning to go all out this buying season.
Just three months ago, no builder was willing to go on record that they were offering cash discounts to home buyers. The reason: they did not want to give it away that property prices were under pressure.
However, falling sales and rising inventory over the last 18 months have forced them to come out and admit that they are looking to offer cash discounts, besides other measures in this buying season. The home buying season typically starts during the festival season (Diwali) and ends in the month of March and most builders do almost 60 per cent of their business in this period.
The admission of a price cut between 5 and 15 per cent from builders has come right before this buying season. For instance, in Delhi, real estate major DLF has launched a project comprising 36 villas of about 194 sq yard, each priced at Rs 90 lakh, in Manesar, Gurgaon – a far cry from Rs 1.5-crore villas that were being sold a year-and a-half ago. The developer has already made a shift to middle-income housing last year, where it was offering flats between Rs 25 lakh and Rs 35 lakh. Others like Puravankara, Unitech and Omaxe too are planning to go the mid-income way.
In the garden city of Bangalore, Indiareit is planning to cut down prices by 15 per cent in a villa project. Even the Mumbai-based Ajmera Group is mulling cash discount, but only for a limited period. “We have the option of waiving off stamp duty, tie-up with a bank or give direct cash discounts,” says Rajnikant Ajmera, managing director, Ajmera group, and president, Confederation of Real Estate Developers Associations of India (Credai).
The government has also done its bit to ease the matters. For instance, in Mumbai especially, the state government has decided to increase the floor space index (FSI) from 2 to 4. This basically implies that the builder will be able to develop twice as much on the same piece of land.
Most of these discounts are going to be unveiled in property exhibitions that will start just before the festival season. There will be spot discounts for booking flats at the exhibitions. Add these to offers from home loan companies like lower rates or waivers on processing and administration fees and things look much better this year.
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However, if you are going to buy an existing project, do not expect the builder to come out and openly give you a cash discount. Explains Ramani Sastri, the former president of Credai, “Early buyers will feel cheated, if the developer starts selling the flats at a lower rate.” So if you are eyeing an existing project, negotiate with the builder directly for a good bargain.
The change in ground realities has forced builders to change their minds. Since the last year, many potential home buyers have deferred their decision due to unrealistic prices and spiralling home loan rates.
The numbers clearly depict this. Since the start of the property boom in 2003, real estate prices have gone up by as much as 400 per cent, according to various estimates. Also, floating home loan rates have gone up 4.5 per cent (from 7 per cent to 11.5 per cent). Fixed rates today are as high as 14 per cent – equal to what they were a decade ago. This basically implies that considering every 0.5-per cent rise in the rate leads to an increase by Rs 40 per lakh, the equated monthly instalment (EMI) on a Rs 20 lakh home loan for 15 years would have increased by almost Rs 1,800.
This, along with rise in realty prices, has ensured that buyers stay away. As a result, most have witnessed a drastic slowdown in their businesses. For instance, Delhi-based Parsvnath reported a 17 per cent growth in revenues this financial year as against 135 per cent in the last financial year. Unitech witnessed subdued 26 per cent growth in sales this financial year after a whopping 253 per cent in the previous year.
According to a head of an international property consultancy firm, the average drop in sales for the industry in the last calendar year was around 60 per cent. Since April, there was another drop of 30-40 per cent in sales compared with those last year. The drop has not just been in the bigger metros, but small towns (classified as tier-II and tier-III cities) have seen an average fall of 25 per cent between February and July, according to data compiled by the Associated Chambers of Commerce and Industry of India.
Given this scenario, many like Pranay Vakil, chairman, Knight Frank, expect the worst. He feels that developers are pinning their hopes on festival season sales because of the miserable sales last year. The real correction could start after the festival season.
If the consumer’s response remains weak, there could be correction up to 40 per cent in over- heated markets such as Noida and Jaipur, which are already down 15-20 per cent. “In cities such as, Mumbai a 10 - 15 per cent correction has already happened. It may rise to 25 per cent after November 15,” he says.
