Pull and push of home prices

Cost­push, de­mand­pull fac­tors in­di­cate re­turn of price sta­bil­ity in the pri­mary hous­ing mar­ket

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Mu­niesh­wer A Sa­gar n mu­niesh­wer.sa­gar@hin­dus­tan­times.com

CHANDI­GARH: Home prices in the se­condary mar­ket (re­sale) con­sis­tently de­clined in the last six years. In the pri­mary mar­ket, prices de­clined, but at much lower rates. Sev­eral fac­tors in­di­cate that prices in the pri­mary are set to sta­bilise.


The Rera com­pli­ance: The Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act is ex­pected to bring in greater trans­parency and ac­count­abil­ity in the hous­ing sec­tor. There are also con­cerns that it might add to the over­all cost of hous­ing for the buyer.

“The com­pli­ance with the norms and con­di­tions of the act will in­crease the cost for the de­vel­oper, which ul­ti­mately will be passed on to the buyer. Also con­di­tions re­gard­ing the es­crow ac­count for a project and re­stric­tions on spend­ing of the col­lected money from the home buyer for a project are also ex­pected to in­crease the costs for the de­vel­oper. This in­crease in cost will re­strict de­vel­oper’s abil­ity to cut prices,” says Pra­teek Mit­tal, chair­man of real es­tate and in­fra­struc­ture, re­gional coun­cil (north In­dia), AS­SOCHAM (As­so­ci­ated Cham­bers of Com­merce of In­dia). Raw ma­te­rial costs: In re­cent past, cost of sev­eral con­struc­tion ma­te­ri­als in­creased while for some it de­clined. The new in­di­rect tax regime, GST (goods and ser­vices tax) has also added to cost fluc­tu­a­tions for some raw ma­te­ri­als. These are, how­ever, still early days to fully as­sess the im­pact of the GST on the real es­tate sec­tor. But, lo­cal real es­tate ex­perts say in short term, some raw ma­te­ri­als have reg­is­tered price ap­pre­ci­a­tion.

“There are still sev­eral is­sues to be sorted out at the level of the tax payer. Some of the sup­pli­ers of in­puts to the con­struc­tion in­dus­try have in­creased price of com­modi­ties and are adding G ST to it. This is es­pe­cially the case with items that are sold in open and not marked with MR P( max­i­mum re­tail price ). The in­creased labour costs have also added to the con­struc­tion cost. These fac­tors might re­strict the po­ten­tial of price cuts, par­tic­u­larly, in the short term,” says RP Mal­ho­tra, a Chandi­garh-based real es­tate ex­pert.


De­mand-sup­ply ad­just­ments: It is now nearly six years since the slow­down in the hous­ing sec­tor started. And then came sev­eral pol­icy de­ci­sions that im­pacted both de­mand and sup­ply in the sec­tor. The de­mand-sup­ply mis­match was one of the rea­sons con­tribut­ing to slug­gish mar­ket con­di­tions and price cor­rec­tions. This is now start­ing to sta­bilise.

“The triple tsunami of de­mon­eti­sa­tion, RERA and GST re­sulted in a de­cel­er­a­tion of new prop­erty launches. The sup­ply of new hous­ing units in the top six cities in In­dia dur­ing the first three quar­ters of 2017 was down by around 60% com­pared to the same pe­riod in 2016. How­ever, this cur­tailed pipe­line of new launches serves to cover the pre­vail­ing de­mand-sup­ply mis­match, imp art equi­lib­rium to the mar­ket and make it un­prece­dent­edly end-user friendly,” says Anuj Puri, chair­man of ANAROCK prop­erty con­sul­tants.

In­crease bal­ance be­tween the de­mand and sup­ply will fur­ther sta­bilise prices in the sec­tor and re­duce prospects of home price cor­rec­tions in the pri­mary mar­ket. De­vel­op­ers are also ad­just­ing to the slow­down and gov­ern­ment pol­icy. More and more de­vel­op­ers are now fo­cus­ing on the large po­ten­tial un­tapped de­mand in the af­ford­able hous­ing seg­ment. The re­cent gov­ern­ment ini­tia­tives in the seg­ment are also en­cour­ag­ing sup­ply cre­ation in this seg­ment while the mid-price seg­ment reg­is­ters sup­ply stag­na­tion.

De­mand re­vival: As the gap be­tween de­mand and sup­ply nar­rows with tepid sup­ply growth, there are ex­pec­ta­tions that sev­eral fac­tors might in­crease the hous­ing de­mand at the same time.

“The im­pact of the salary in­creases as per the 7th pay com­mis­sion will start to fell in the medium term. One can ex­pect the hous­ing sec­tor to ben­e­fit from it. There are also in­di­ca­tions that af­ter sev­eral pol­icy in­duced dis­tur­bances in the econ­omy, it is now get­ting sta­bilised and growth rates are pick­ing up in dif­fer­ent sec­tors. All this will im­pact pos­i­tively the hous­ing sec­tor and fuel de­mand growth,” says Mal­ho­tra.

The rel­a­tively low home loan in­ter­est rates cou­pled with in­creased money in pock­ets of the salaried gov­ern­ment class is also ex­pected to give a boost to hous­ing de­mand in the medi­umterm, say realty ex­perts. Im­proved buyer con­fi­dence: The builder fail­ure to de­liver on his prom­ises was one of the ma­jor con­trib­u­tory fac­tors for the de­mand de­cline. Rera, GST and con­trol­ling the flow of black money to the hous­ing sec­tor are ex­pected to boost buyer con­fi­dence in the sec­tor and builder ac­count­abil­ity.

“There is a grow­ing need for tax ra­tio­nal­i­sa­tion and some sta­bil­i­sa­tion. We are aware that the im­ple­men­ta­tion of the GST and RERA, have added to the chal­lenges of the real es­tate sec­tor, but go­ing for­ward, the net im­pact of these poli­cies, will be pos­i­tive and the sec­tor should be able to wit­ness a en­hanced sense of trans­parency and ac­count­abil­ity,” says Ni­ran­jan Hi­ranan-- dani, pres­i­dent, NAREDCO (Na­tional Real Es­tate De­vel­op­ment Coun­cil).

Shift­ing moods: The mar­ket sen­ti­ment holds the key to price move­ments. So far, the in­vestor has stayed away from the sec­tor not sure whether he can gain from the cur­rent mar­ket con­di­tions.

“While sen­ti­ments are largely tran­sient in na­ture, the preva­lent mood in the in­dus­try re­flects that it has fi­nally come to terms with the short-term ad­verse im­pacts of the struc­tural re­forms that be­came a re­al­ity over the past 12-odd months,” says, Shishir Bai­jal, chair­man and man­ag­ing di­rec­tor, Knight Frank In­dia. The sub­dued mar­ket sen­ti­ment can start to change when “the end-user de­mand be­comes sta­ble in most seg­ments of the sec­tor. As this hap­pens we will see the re­turn of the in­vestor. This isn’t ex­pected in the short term. But, we can ex­pect de­mand in­crease and price sta­bi­liza­tion in the com­ing months ,” says Mal­ho­tra.

For the end-user, say realty ex­perts, it is time to ex­plore the hous­ing mar­ket. In the short term, the builder dis­counts and free­bies are ex­pected to con­tinue as they reel un­der con­tin­ued pres­sure.


An in­crease in bal­ance be­tween de­mand and sup­ply will sta­bilise prices in the sec­tor and re­duce prospects of home price cor­rec­tions in the pri­mary mar­ket.

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