Where are the buyers…?
While the government is trying to bring in more transparency in this sector, more and more misdeeds of builders and developers are coming to the fore.
The real estate market for residential units remains subdued owing to several factors, which mainly include incomplete projects adversely affecting the confidence of buyers, over-leveraged balance sheets of frontline realty firms and a weak job market.
Regulatory norms like RERA [Real Estate (Regulation and Development) Act, 2016], Goods and Services Tax (GST), Benami Property Transactions Act, together with demonetisation, are impacting the sector and this effect is here to stay for a few months.
The stock of unsold units in the top markets of the country stands at a whopping 6 lakh units. The unsold inventory made it a buyers’ market, leading to a dip in prices last year, and experts point out that it has become even more so this year.
Even property brokers are saying that the market is bad. There's a slowdown. Although the number of queries has not changed, transactions are falling.
The market goes through phases of growth as well as depression. For instance, at present, there are more houses ready for sale than there is demand for. If we look at the difficulties developers are facing in selling homes, the Indian market is in a depression, though still not at the lowest point of the trough.
However, local factors, too, matter. “Properties in one city or a location within a city can perform differently from each other depending upon the state of the local economy and factors such as infrastructure,” said Mangat Rai Baboota, developer and real estate consultant in Tricity.
Customers’ behaviour has changed in the past few years as they have become more apprehensive. With buyers having lost confidence in a developer’s ability to construct and deliver a project on time. The market may have plenty to offer, but the buyers are wary of the developers’ tall claims.
There is plentiful supply in the market, even in the ready-to-move-in category. If there is any difficulty for buyers at all, it probably lies in the fact that they are spoilt for choice. The lack of conviction in a builder’s ability to deliver is not an overnight phenomenon. It has taken shape over a period of time.
Developers in the past have launched massive townships and often used advance taken from customers to buy land or launch other projects. This often led to delays in construction by months and even years, resulting in an erosion of confidence among home buyers.
As of now, RERA is a long-drawn battle. The regulator is yet to be appointed in many states and then the builders have to register themselves.
RERA brings discipline and transparency to the sector, but it all depends on speedy implementation, a forum consisting of home buyers fighting for the implementation of RERA. At the moment, dilution in real estate rules by states and non-appointment of regulator are the biggest concerns.
Unrealistic prices, coupled with demonetisation, led to a price fall in the range of 15-25 per cent in 2016. It was a buyer’s market last year and has become even more so this year. Prices are at their lowest point, banks are eager to lend and developers are becoming more lenient to lure customers with more discounts and attractive offers.
However, even such tricks such as discounts, flexi payment plans and freebies such as club memberships have not been able to turn around consumer’s sentiment and result in upward sales.
Most developers are running high debt, and servicing that is eating into their wafer-thin margins. Generally, most developers think there is any room to cut prices further.
The marekt is a fraction of what it was in its best of times. In the residential segment, launches and absorption failed to impress, although there has been a marginal increase in transactions.
There is, however, a significant difference between the prices quoted by developers and the actual prices arrived at after negotiations. Actual prices today can be 5-15 per cent lower than quoted prices across markets.
Developers have also been offering freebies such as attractive finance schemes, gift vouchers, foreign trips and free parking space to entice buyers.
Builders are not cutting rates, but are offering free club memberships or parking. Builders say that selling existing inventory at lower prices will result in trust deficit with buyers who have already bought a property.
There is still a lot of uncertainty about the recently announced reforms by the government, be it REITs or RERA. One wonders whether the market sentiment will get a boost if reforms by government and regulatory bodies are implemented.
In cities across northern India, real estate prices have grown at their slowest pace since 2013. The South, on the other hand, has done well largely on account of end-user demand, especially in IT-driven growth clusters.
Land prices have been high, and the cost of construction is going up, with increasing labour costs and other inputs, even though steel and cement have been relatively stable during this period.
Those developers who purchased land at higher costs are feeling the pressure of a slow market. Projects in a good location, with viable pricing, are in demand.