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.

Alive - - News - By S C Dhall

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.

Un­der pres­sure

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.

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