New launches at ‘real’ prices RATE BAIT
Developers wanting some movement in a slow market are launching premium projects at unbelievably affordable rates
Afew months ago, a leading consultancy in its report had said that the uncertainty over project deliveries and the unaffordability of existing supply had led to depressed buyer sentiments in the NCR and bottoming out of sales velocity. The market dynamics have been such that short-term speculators have been restrained from making quick returns from real estate investments. Long-term investors have also been exercising caution because of the muted price growth. The NCR, India’s largest residential market, was also challenged with the country’s largest unsold inventory of 189,768 units.
Three months later, as the market is looking to beat the blues during the festive season which has seen very few launches, a leading developer has decided to launch 100-odd units at unbelievable prices of ₹ 2,500 per sq ft, just about recovering land costs.
This move is being viewed by realty experts as a bid to create a buzz in a slow market. With a not- very- spectacular year nearing the last few months, are prominent developers now out to prove to the more-thanever cautious customers that they too can offer real prices? Will the strategy of launching a few units at rock-bottom prices revive consumer confidence and lead to the much-needed traction in the market?
By repricing at the bottom of the market, not only are developers bringing attention to their projects, they are also shaking up the markets a little, attempting to create movement, says Anckur Srivasttava of GenReal Advisers.
It is a price discovery mechanism and reflects the state of health of any real estate market. At this price point liquidity is a given, something that helps create movement in the market. Eventually prices will adjust too. Earlier, in a fast moving market, when margins were high and enough buyers existed, builders would discover a higher price whenever they would launch a new project. This time round, however, the buyer is discovering the real price at the bottom of the market. Once a real estate product is priced right in a slow market, liquidity is bound to return, say experts.
The market is facing a crisis of confidence and this is the right step towards revival, they add. Navin M Raheja, CMD, Raheja Raheja Group has launched 114 low-rise apartments at a price of ₹ 2,500 per sq ft in Sohna. The actual market price in the area is anything between ₹ 5,000 per sq ft to ₹ 7,000 per sq ft. Villas in the project are being sold at around ₹ 8,500 per sq ft A few weeks ago, Yamuna Express Industrial Development Authority launched 900 plots of 120 sq metre and 162 sq m, priced at ₹ 17.04 lakh and ₹ 23 lakh Chennai builder VGN Developers has announced the launch of 1,300 apartments at just ₹ 7,000 per sq ft, when the prevailing rate in the area has been close to ₹ 9,500 per sq ft Group, whose company has launched a scheme limited to 114 low-rise apartments, says that of late expectations have been high in the real estate market of developers correcting prices. It’s also because of this that many homebuyers have been sitting on the fence. “We have only brought down the price at the level of what it cost us and that has resulted in increased bookings,” he claims.
“It has certainly resulted in the necessary cash flow and movement in inventory. It has also helped us in selling our inventory and our customers have got an opportunity to buy something at real prices,” he says.
While this scheme is limited to 114 low-rise units, Raheja will be launching a similar scheme limited to 200 or 300 units next time around in the same or a different area. “We will be assessing the market before deciding on the price which will be according to market dynamics and acceptability,” Raheja adds.
A few weeks ago, Yamuna Express Industrial Development Authority also launched a plot scheme, releasing an inventory spread across two acres at affordable prices. Attempting to inject life in the recession-hit market, it launched 900 plots of 120 sq metre and 162 sq m, priced at ₹ 17.04 lakh and ₹ 23 lakh, respectively, in the prime location of Sector 22D.
C h e n n a i b u i l d e r VG N D eve l o p e r s a l s o r e c e n t l y announced the launch of 1,300 apartments for just ₹ 7,000 per sq ft in an area where rates usually are close to ₹ 9,500 per sq ft. The promoter Pratish Devadoss was quoted as saying that this discount was not only about making the best of the festival season but also about generating the much-needed cashflows. “So, we decided let us bring the prices down, increase the affordability and get cash flows into the company,” he reportedly said in an interview.
A Bangalore- based realty group tied up with a bank to offer buyers a 200 basis point cut on a home loan for the group’s ongoing township project. This helped increase the company’s cash flows in a slow moving market.
This is an intelligent way of discovering the right price in a slow moving market, say real estate experts. But the question here is whether all other developers will follow suit instead of dying a slow death. Dr Samantak Das, chief economist and director-research and advisory services, terms this is a “coping strategy” by developers who are in a tight spot as far as cash flows are concerned. This not only helps attract customers, but the market also gets kickstarted in terms of cash flows.
Such schemes, however, can only be launched by developers who have large land banks, large inventories and have the wherewithal to hold on for a longer period of time, add realty experts.