Commerce & Industry Minister Piyush Goyal has advised builders to sell projects at reduced prices to clear unsold inventory. However, is it possible for developers to do that?
Is real estate in India high-priced and need to be priced realistically to get sales back on track and survive this downturn? This question has come to the fore after Union Minister of Railways and Commerce & Industry Piyush Goyal recently advised builders to sell projects at reduced prices to clear unsold inventory.
Goyal has reportedly said that real estate developers continue to hold on to high-priced inventory. They, therefore, have no choice but to construct, and sell projects at reduced and realistic prices without waiting for the market to improve. Only this can help them survive this downturn.
Interestingly, many industry experts and developers have also welcomed Goyal’s suggestion for making the property prices realistic, particularly during the current crisis when their survival itself is at stake. Simultaneously, they also say that price reduction is not feasible at the moment as many factors are still beyond the control of developers.
For instance, Anuj Puri, Chairman, ANAROCK Property Consultants, says, “While reducing property rates seems logical, there are many factors involved – some of which are beyond the control of developers. In some cities like Mumbai, there is only a minuscule difference between RR rates and market rates. It is not legally possible to sell properties below the RR/circle rates – so, the government would still need to reduce these rates for developers to be able to lower their prices.”
Also, aid to the sector comes in more than one shape and form. The Finance Minister, for example, recently announced that some relief is being planned for aspiring homebuyers, and boosting homebuyer sentiment will definitely aid the real estate sector. “We are awaiting the FM’s announcement in this regard. Moreover, all of the government’s moves to rein in job losses and boost the economy will impact real estate positively,” says Puri.
Real estate services companies say that obviously builders aspire to increase their sales of available inventory, whether it be ready-to-move-in or under construction. There is a price differential between ready-to-move-in and under construction projects, and this is largely dependent on market dynamics.
“While buyers have shown a tendency to prefer ready-to-move-in homes, there is not enough supply to meet demand. Property prices in a majority of Tier 1 cities have not increased significantly over the last few years and a significant price correction looks unlikely. However, builders are offering buyers some additional incentives to buy, such as price protection schemes, flexible payment plans, and offers such as waiver of stamp duty and registration charges,” says Mani Rangarajan, Group COO, Housing.com, Makaan.com and Proptiger.com.
Kapil Kapur, Director – Sales, Strategy & Business Development at Bullmen Realty India, says, “It is a welcome suggestion and almost similar to what the sector has been doing. Since the time the government came out with a slew of measures, the real estate sector has been able to sell a lot of inventory due to buyers’ enhanced trust. Now whatever is left will soon be done away with as demand is good in the market. The sector is likely to see a boom in demand as is evident from the responses during the lockdown. The prices are already under control; no one will like to sell below the cost. It is good that the government is concerned about the prices and thus it is the right time to take a call on long-term demand of realtors regarding the cost of raw materials.”
Need for Government Intervention & Support
Industry players say that all said and done, the real estate sector badly needs government intervention and support for survival.
“Given residential home sales declined 11% in FY19-20 in Tier 1 cities compared to the prior year, there is a need to stimulate demand which will necessitate government intervention. These include moves such as one-time loan restructuring, control over raw material price escalations, input tax credits and reduction in GST rates,” Rangarajan suggests.
Arun MN, Founder and Managing Director of CASAGRAND, says, “The real estate sector has witnessed severe losses during this pandemic. Besides the increase in cost of construction material, the unavailability of labourers continues to be a problem for the sector. At the moment, I do not think we will be able to lower the property prices any further as we are already operating at the lowest possible market rate. Instead, we plan to offer customers options of easier payment models like a No Pre-EMI offer and lesser down payments. This makes it easier for a customer to buy a property without hampering their regular commitments during these challenging times. Moreover, initiatives like reduction in GST for the sector and low interest on home loans will help the sector recover faster.”
Some developers say that realty prices are already low and they do not have huge inventory of RTMI (ready-to-move-in) properties to meet the overall demand.
“Focus has to be on developing and completing projects at hand. To execute it with control over prices, developers need support from the government. The present government has come up with many measures to help real estate, but the need is to address all issues at one go. The crisis that has now engulfed the whole country calls for an immediate action so that the ‘Housing for All’ dream can be met on time,” observes Ashok Gupta, CMD, Ajnara India Ltd.