Coronavirus Crisis: Developers need to bring down property prices to clear unsold inventory

June 13, 2020 1:19 PM

Commerce & Industry Minister Piyush Goyal had recently said that developers will be stuck with their inventory if they don’t reduce rates.

real estate, impact of Coronavirus on housing sales, lockdown, Developers, property prices, unsold inventory, Piyush GoyalA majority of developers, however, want reduction in prices and they are also doing it.

The real estate industry is hard hit by Covid-19 and the subsequent lockdown. The pressure to reduce prices is enormous on developers and it is not true that developers are not in favour of reducing prices.

Commerce & Industry Minister Piyush Goyal in a webinar recently said that “markets will not recover in a hurry and the best bet is to sell.” He said developers will be stuck with their inventory if they don’t reduce rates.

However, it is only a few large developers who are resisting to lower the price point. These deep-pocket developers are doing so majorly because they don’t want their brand value to take a hit and they don’t want to show desperation in disposing their unsold inventory. They have large holding capacity and perhaps will be the last ones to get into the reduction race, if they at all do so.

A majority of developers, however, want reduction in prices and they are also doing it. Some are doing it in the form of freebies, sops and schemes, others are doing it as direct discounts on th agreement value.

There is only one hurdle though, the Ready Reckoner Rate! The Ready Reckoner Rate is the value of a property and this is regulated by the state government.

There is huge I-T penalty in case of violation of RRR (ready reckoner rate) and hence developers are hesitant and unable to reduce prices below the set rates and attract legal action. This is already on the discussion table and the government may soon come across with new RRR, which will give further freehand to developers in cutting their prices.

Union Minister for Commerce and Industry Piyush Goyal had said, “We are trying to give concessions in the ready reckoner rates, but even if that doesn’t happen, you will have to sell your stock. I cannot be more explicit. Unless you reduce your rates, believe me you are stuck with your material. You can choose to be stuck with your material, default with the bank, and then the material goes away.”

So, most of the developers need to sell their inventory and that too at a depleted cost, whether they like it or not. That will not only take care of their immediate cash crunch, but also help tide over the huge legal hassle looming above their head. To give a perspective of the magnitude of the problem – In the nine top cities, developers were sitting on an unsold stock of approx. 8 lakh + units, worth approximately Rs 6 lakh crore, as of March 2020. Project launches are already down by 51% (source – proptiger datalabs), which is waiting to add on to the already humongous unsold stock. This stock needs to be liquidated at the earliest and sales velocity can come by lowering the prices.

Of course, there are other factors too responsible for buying behavior in current times like job security and confidence in the project itself. However, price point has always been a major drive for sales happening or not happening in a price-sensitive market like India.

My personal opinion is that the real estate price fall will be to a tune of anything between 10% and 25%, depending on the location and project, for at least the next 6 months.

(By Yogesh Jaiswal, Director, Le Classique Realty Pvt Ltd)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Gold slides from all-time high level: What investors should do now?
2Are more people buying health insurance policies now? Find out
3E-Insurance policy: Benefits of holding an e-insurance policy