Realty sector says lower prices don’t mean higher sales

Industry cites measures to aid a sector under pressure

The real estate industry is disconcerted by the observations of Commerce and Industry Minister Piyush Goyal that the players in the sector should not wait for government aid or markets to rationalise.

Rather, they should start lowering prices and, if the worst comes to the worst, write off investment as bad business decisions, the minister said.

Executives say the sector has been ailing for several months since the shake-out in non-banking financial companies, and the pandemic-related shutdown has made the bad situation worse and needs special treatment.

While Goyal said lowering prices was the only way out, industry leaders cited additional measures that might aid the depressed sector.

Jitu Virwani, chairman of the Embassy Group, said: “It’s not only the real estate players but all entrepreneurs and industrialists need reduced interest rates for the next three years. I am saying no waiver as banks need interest but with the repo rate so low why do they need to work with such a big margin? So my view is that interest rates for home buyers should be around 5.5 per cent for the next three years. Keep in mind that the overall target should be to allow businesses to recover.”

A Mumbai-based realty chief executive officer (CEO) said lowering the circle rate or the ready reckoner for gauging realty prices should be used as incentives for homebuyers to come back to the market.

“Even if there are no sops for the developers, then for the sake of the economy they should be there for the customers. So where are the rebates?” he asked.

Buyers should get incentives to buy flats because there are at least 250 industries that are dependent on real estate — from steel to cement to paints to business services.”

A six-month delay in sales means expenses will pile up for developers, says Bala Shetty, CEO at Bala & Associates, a luxury real estate brokerage firm.

He says the government can help by lowering rates for those who are not taking loans.

“The person who has the money and can afford to buy a second or third home should be given a tax shelter on the money that is being used to pay equated monthly instalments (EMIS),” Shetty said.

“That will help fire home sales more than adjusting rates for lending to developers. It’s all about sentiment at this stage.”

Beyond banking rates, another possible measure to help real estate includes flexibility on the prevailing goods and services tax (GST) structure.

“A way to ease pricing pressure in cities where land doesn’t form a larger percentage of overall costs to the developer can be to offer input tax credit on the GST charged,” said Mayank Ruia, CEO, Maia Estates, a Bengaluru-based luxury property developer.

Gulam Zia, executive director at Knight Frank India, said: “Developers today are in deep distress due to nonexistent sales and wafer-thin margins. Any further price reduction may not just make the developer bankrupt, it may push many banks also into a crisis.”

“If a developer brings the prices down, a buyer would definitely see a great advantage but that may not bring sales back to the previous highs as homebuyers are also on the backfoot due to losses in their businesses or rising unemployment. A price correction won’t automatically mean higher sales.”

Segments hit hardest are commercial and retail with affordable and mid-market housing poised to recover faster, experts say.

What should the government do to make life easier for the sector? It comes back to the ready reckoner principle.

Zia says the government needs to revise the relevant clauses in the Income Tax Act to ensure that real estate sellers are not burdened with taxes on unearned income due to an unsubstantiated difference between prices and ready reckoner values.