High demand for homes but market down
DECLINE The slowdown in property sales happened 4 years ago, propelled by high prices. Analysts say buyers are back but too few in number to pull the business out of the slump
are trickling back but the slump in India’s real estate sector continues to pinch businesses, despite high demand for houses, stable property prices and a large inventory on sale.
Developers are trying new tricks to lure buyers, ranging from a slew of price cuts, offers such as no floor rise (the premium buyers pay for apartments on higher floors), zero goods and services tax (GST), payment flexibility and lenient loans. These offers were on ample display at the recent Maharashtra Chambers of Housing Industry (MCHI-CREDAI) realty exhibition in Mumbai.
Still, the market is down.
“The biggest challenge now is to transform the mindset of the customer and infuse trust in him. It is too early to predict how sales will shape up after this sixmonth break, but I would think the recovery in the sector will take another year, at least,” said Rajeev Talwar, the chief executive officer at DLF Ltd.
DLF Ltd, the country’s largest real estate developer, suspended home sales on May 1 on a cautionary note due to the new real estate law and resumed only in November. The company clocked zero sales in six months.
The slowdown in property sales started four years ago, propelled by high prices, delays in handing homes and loss of faith in builders not keeping their promise. Regulatory changes such as implementation of the Real Estate (Regulation and Development) Act, or Rera, and the GST added to the disruption (although both are fundamentally good measures).
According to property analysts, buyers are back but too few in number to pull the business out of the slump. Most sales are in the lower price range and many developers in larger cities are struggling to offload residential stock.
“The good thing is that the market has been able to hold up, but it’s mainly been in the affordable segment, in the Rs40lakh range. Builders have committed much more than they have delivered leading to huge pile-up of inventory,” said Pankaj Kapoor, the managing director of Liases Foras Real Estate Rating and Research Pvt. Ltd.
Kapoor believes that this is an opportune time for serious buyers as prices have stabilised and developers are offering a range of incentives, particularly for ready-to-move in homes.
Data published by Liases Foras on November 29 show sales across Tier I cities declined with Chennai leading the slump at -13%, followed by Kolkata at -8%, in the July-September quarter compared to the preceding three months.
BENGALURU/MUMBAI/PUNE:Homebuyers
ROADBLOCKS
The implementation of Rera and GST this year slowed the pace of project launches and sales just when realty firms were recovering from the November 2016 demonetisation drive, which wiped out 86% of the cash in circulation in the country.
The real estate law is designed to protect millions of homebuyers facing harassment because of limited legal options at times of dispute. If the new law forced developers to be more responsible and accountable, the GST pushed back sales with additional levies.
Buying property attracts GST at a net effective rate of 12%, as against around 5.5% of sales tax plus service tax before the new tax regime was enforced this July; there’s another 6% stamp duty charge in a city like Mumbai. So for an apartment of ~1 crore, a buyer has to pay another ~18 lakh.
“This is a huge burden and buyers feel they can get a home at Rs 18 lakh on the outskirts of Mumbai,” said Rajesh Vardhan, director of Vardhman Builders.
The GST input credit tax, which is reimbursed, is hardly around 3%. That means the consumer still has to shell 15% extra as taxes. Vardhman Builders, which has five projects in Mumbai and its outskirts, witnessed a drop in sales by over 75% since GST was implemented.
Pune-based Panchshil Realty’s chairman Atul Chordia said home bookings have almost stalled, pulling down sales across the city. Ready projects are selling