Multimedia Studio, Mumbai had been examine how builders’ reluctance to reduce prices and buyers’ continued expectations of a crash in property rates, could be adversely affecting the real estate market and delaying its recovery.
An example of Mumbai-based IT professional, Zoya Shaikh, aged 35, has been postponing her house purchase plans for nearly four years now, expecting prices to ‘crash’, as a demand slowdown pressured developers to price homes more reasonably. Her expectations are not ill-founded. A multi-year general slowdown in India’s housing markets has resulted in builders being able to sell only 35,132 units during the July-September period of 2020. Worse, a mere 19,865 new units were launched during the same period across India’s nine key markets, shows Housing.com data. This is in sharp contrast with the sale of 81,886 housing units during the same period in 2019. A total of 59,216 units were launched in the said period.
This, however, has had little bearing on price correction, flabbergasting buyers like Shaikh. “My patience is wearing thin and I may be forced to make a decision about the purchase,” says Shaikh, adding that it was difficult for her to cope with the lockdown while being in a rented accommodation. Her landlord would continue to check up on her employment status, worried over the economic gloom. While some would say that Talukdar has waited too long, others may feel that she should stay put for a while.
Even the government is using tersely-worded advisories to the developer community to reduce prices if they want to survive the Coronavirus impact on real estate. “You can choose to be stuck with your inventory, then, default with the banks or you can choose to sell it even if you have bought it at high prices and move forward,” commerce minister Piyush Goyal told the builder community, while addressing a video conference meeting organized by the National Real Estate Development Council (NAREDCO), in June 2020.
Shaikh, however, does not think much has happened since that warning was issued. “Even though there has been downward movement in property rates here in the past five years, I do not see any crash happening in the foreseeable future. The mere expectation is illogical,” she says.
Property rates in Indian housing markets have depreciated in the past five years, because of a general slowdown in demand. After undergoing a correction of -3% annually, average property values in Mumbai stood at Rs 15,220 per sq ft in September 2020, shows the data.
India’s realty sector continues to suffer on account of unreasonable expectations – greed is the word they use in behavioral finance – from stakeholders. If developers aspired to extract the best possible price for homes during the boom time, buyers are now refusing to invest, in spite of record-low interest rates and heavy discounts. This tendency goes directly opposite to billionaire investor Warren Buffett’s advice, who once said it’s wise for investors to ‘be fearful when others are greedy and greedy when others are fearful’.
Real estate market recovery:
How is ‘greed’ affecting the Indian property market?
Emotions often drive real estate purchases. If buyers’ unreasonable expectations or greed continues to demand a crash, sellers / builders continue to resist corrections in property rates, even if they have to pay a price for it. This is evident from the unsold housing stock that continues to burden India’s builders but they continue to evade any suggestions of re-pricing this stock.
Will property prices fall after COVID-19?
“Committing to a high-end purchase like real estate, is usually a once-in-a-lifetime decision for a majority of buyers. Therefore, the expectation of a price crash as an after-effect of the pandemic, is genuine. However, we as developers also have certain unavoidable overhead charges and permission costs, which cannot be withered away just like that,” says Mangal Parbhat Lodha, director, Lodha Housing & Holding. Buyers are witnessing a correction in prices, discounts and additional benefits in almost all of their purchases, says Lodha, adding that developers have gone out of their way to bring flexible payment plans and offers.
He, however, rules out any possibility of a price crash. “The expectation of a drastic price crash is simply not a possibility in present times, due to the offerings and additional amenities engineered and introduced by developers in their projects, as post-COVID-19 necessities for the comfort and safety of home buyers,” he opines. Nevertheless, there are many sellers who continue to wait for prices to reach levels that were common before a general slowdown hit India’s housing markets in 2013. “I have clients in the resale market who refuse to budge about pricing, even if they have to continue to wait, to find a buyer who would be willing to pay the asking price. These sellers are simply unable to let go of the notion that these properties did command a certain worth in the past. In a way, they do not want to wake up to the rude realities,” says Yusuf Bhandarkar, a Mumbai-based real estate consultant. Mumbai is only has a resale market as there is many space for new development. According to the RBI, house prices in Mumbai may fall by 3% this year, in the aftermath of the Coronavirus pandemic.
Benefits for property buyers after Corona: Is it enough?
Buyers continue to resist the lure of affordable properties even now, since they see little merit in the arguments given by the developer/seller community, to justify their stance. “The builder community continues to cite rate cuts by the RBI and stamp duty reductions by state governments, as benefits that buyers must latch on to. What is often missing from the list, is that there would be no real price cut on their side. Any discounts that they offer would typically be in the form of GST waivers or gold coins, which are not really helpful for a genuine buyer, who would prefer reduced per sq ft rates,” says 29-year-old Akash Kulkarni, a media professional, who has been looking for an affordable house in Thane.
Property would become way more affordable for a buyer, if rate cuts were implemented on a per sq ft basis, agrees Osama Shaikh, a Mumbai based lawyer, with specialization in property law. “The developer community continues to pressurize government agencies like the RBI and states to lower home loan rates and stamp duty rates, conveniently forgetting that these only account for a certain portion of a property purchase. They also overlook the fact that a significant portion of buyers do not really have to rely on housing finance to make the purchase. What is the real price benefit for those buyers, even if they factor in certain reductions in stamp duty rates, which, by the way, are hard to come?” asks Shaikh.
Will housing prices fall post-COVID-19?
RBI data show that rates may witness a correction in the range of 10% in the worst-case scenario, because of the impact of the Coronavirus pandemic. The price drop may be different for different cities, it says. Have prices seen any correction in the secondary market post-COVID-19?
By and large, rates in secondary markets are less likely to see a sharp correction, because of resistance from sellers. Sellers, who are not in a hurry to sell their property, are deferring plans to make the sale, consequently blocking any market pressure towards price correction
Why are property prices rising in Hyderabad despite a slowdown?
Property rates in Metros have been consistently rising in the past five years, because of robust demand. Rates have also shown upwards movement, because of low price levels in the past, as compared to other similar markets.
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