Property market after demonetisation: Cash no longer king, discounts, freebies are in things

By: | Published: December 21, 2016 7:06 AM

With the traditionally cash-dominated property market in disarray after demonetisation, builders are pulling out all the stops to push out inventory. From deeper discounts, compensation for a loss in value after the purchase and easier repayment timelines, they’re not holding back.

 

Mumbai-based Runwal Group, for instance, has advertised a price assurance scheme. “If prices fall, we will compensate for the loss,” reads the advertisement.Mumbai-based Runwal Group, for instance, has advertised a price assurance scheme. “If prices fall, we will compensate for the loss,” reads the advertisement.

With the traditionally cash-dominated property market in disarray after demonetisation, builders are pulling out all the stops to push out inventory. From deeper discounts, compensation for a loss in value after the purchase and easier repayment timelines, they’re not holding back.

Mumbai-based Runwal Group, for instance, has advertised a price assurance scheme. “If prices fall, we will compensate for the loss,” reads the advertisement.

That’s the extent builders need to go to reassure consumers who apprehensive property prices may fall after a purchase. While there’s some concern about these schemes since their legal status is questionable, Navin Makhija, MD, Wadhwa Group, says times are tough and builders need to sweeten offers. “We are offering more flexible payment timelines and also customised interiors at no extra cost,” Wadhwa said.

While such freebies are fine, many feel outright discounts may be more effective. Bank of America Merrill Lynch wrote in a recent report, however, that projects under construction may not actively announce or advertise price cuts given the potential adverse effect on those who have already bought.

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Foreign brokerage CLSA, for its part, believes that given the widespread anticipation of lower prices, customers will need to be nudged whether by way of price cuts or lower interest rates if sales are to increase meaningfully.

Six weeks after demonetisation, smaller builders have started dropping prices. One Chembur-based developer advertised a “post-demonetisation special offer”, pricing one-bedroom apartments at less than R60 lakh, a steep discount to benchmark prices in the popular suburban area in Mumbai.

And the market is already seeing a rash of what are typically festive season offers as developers attempt to push through transactions in an economy that’s slowing due to the acute shortage of cash.

For instance, Lodha Developers has launched a 5:65 scheme for its New Cuffe Parade project, wherein bank pays 65% of the cost with a 5% payment upfront, smaller than the traditional 10% booking amount. At least two other companies have put out newspaper advertisements promoting a 10:80:10 scheme.

Another offer advertised a one-day fire sale for Royal Palms, a project in the western suburbs of Mumbai, offering discounts of between R5 lakh and R39 lakh, depending on the size of the apartment.

Pertinently, BofAML says its conversations with market players suggest developers have high-value inventory, and banks that have lent to them may see some distress as sales likely continue to falter. Indeed, builders are reluctant to lower prices as it would weaken their balance sheets. A study by Knight Frank shows 6.6 lakh units across the top eight cities in India remained unsold at the end of June. Of these, 2 lakh units were located in the national capital region — which could take four and a half years to be sold — while 1.7 lakh units were in Mumbai. “If any leading developer starts announcing price cuts, it could be a problem for the sector,” Neeraj Sharma, director, Grant Thornton, said.

However, some offers may be on their way from the bigger companies even as the Tier II firms have been willing to take a hit to liquidate inventory. Also, with developers building homes that cater to middle-class customers rather than coming up with luxury products, sales could pick up. For now, though, it looks like it’s going to be a long winter.

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