After lying low for six months, developers have once again started offering subvention schemes and easy payment options to bring back consumers in the ongoing festive season. Companies like Godrej Properties have come up with offers like making only 10% upfront payment while the rest can be done after three years. Tata Housing has assured its customers of a rental income for a period of two years. According to the company, this offer will address the issue of having to pay EMI as well as rent while waiting for possession. How much rent one can get depends on the ticket size of the apartment. Similarly, NCR-based Supertech is also offering rental income across its project offerings. Additionally, it is facilitating goods and service tax (GST) waivers as well as EMI-free payment schemes. Sheth Developers is offering “flat” rates in its Mulund project, which comes with no additional cost for floor rise.
The real estate sector has recently had to adjust to the twin policies of GST and Real Estate (Regulation and Development) Act, 2016 (RERA). Developers have been quick to allay fears that GST will lead to an escalation in prices. For instance, effective July 1, Mumbai-based real estate major Oberoi Realty ran a campaign — Zero GST — to emphasise this point across its Goregaon, Mulund and Borivili projects. The company continued levying the pre-GST rate of 5.5% versus 12%, passing on the input credit advantage upfront to customers. Others like Lodha and Sunteck are running similar promotions at the moment. In the advertorials, the quantum of savings are being headlined in no uncertain terms. For instance, to promote its Dombivali project, Lodha claims homebuyers will be able to save almost `2 lakh instantly, signalling a highly price-sensitive environment.
“Market reality is that people are particularly sensitive to pricing at the moment and developers cannot take a chance,” said Samantak Das, national director of research at Knight Frank India.
The sensitivity is not just limited to end users or relatively affordable projects. An analyst pointed out that a 12% liability on pricey projects like Lodha’s Altamount, where apartments go for Rs 100 crore, an additional liability runs into a few crores, something that can easily deter fence sitters. “It is a buyer’s market now and as long as there is demand sitting on the fence, companies have to run subvention schemes because it is the only way they can expect to identify a customer at the moment,” said Amit Bhagat, CEO and managing director at ASK Property Investment Advisors.
To be sure, offers masking a price reduction is not new. While in a buoyant market these offers made an annual festival-driven appearance, in the past two to three years they have appeared at more regular intervals. The implementation of RERA and introduction of GST had put a halt on all project launches and promotions. Now, three weeks after the RERA registration deadline in leading states and almost two months since the implementation of GST, developers seems to have recommitted to reviving demand. Echoing Bhagat’s opinion, Mudassir Zaidi, executive director (north) at Knight Frank India, said that the current market mandates incentives so yesterday’s free parking slot has been replaced by no impact of GST; it’s just a question of packaging. “In a slow environment, developers have to come up with eye-catching offers but at the end of the day, these are just good old ways of reducing prices and inducing people to take a decision,” Zaidi said.
But how much success these might have is doubtful. “There might be some success but schemes won’t result in a meaningful recovery,” Zaidi reiterated. However, some are more positive. “As much as these offers might be a case of old wine in a new bottle, it might be more effective because of RERA,” said Abhishek Anand, a research analyst at JM Financial. It is true that earlier, one of the chief concerns regarding subvention schemes was delay in the timeline. If there is a delay in delivery, the customer stands to lose more in the sense that once the subvention period is over, the EMI will begin irrespective of the construction status. But the implementation of RERA is aimed at resolving completion delays. Experts concurred that subvention schemes and other incentives will flood the market more as the festive season progresses but it will deepen the working capital requirement of companies, which in many cases will lead to delving into a debt trap.