Depression, desperation & discounts : The Tribune India

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Open house: The three Ds of real estate

Depression, desperation & discounts

Navneet Kalra, a homebuyer in Mohali, has a very basic question to ask the builder in her search for an apartment.

Depression, desperation & discounts

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Ravi Sinha

Navneet Kalra, a homebuyer in Mohali, has a very basic question to ask the builder in her search for an apartment. She questions if the developer can offer her so much of discount and freebies, why can’t the same developer straightaway reduce the Basic Sale Price (BSP) of the project. “These dicey discounts and unwanted freebies clearly suggest there is scope for price deduction,” she points out.

In Navneet’s question is hidden the stark reality of the Indian real estate in general and North Indian markets in particular. The developer will continue to bombard customers with the offers of discounts; giving amenities that a new homebuyer might already be in possession of and even holiday tours, but will never reduce his BSP.

Reasons: it hurts his brand reputation (read ego) to scale down the price due to low sales and, equally importantly if not more, is his sales channel of brokers and under-writers who force the developers to do so as they do not want to lose on their commission that is calculated on the BSP.

Off-track

Since the Indian real estate is groping in dark as far as the new ideas and marketing strategies are concerned, they are often going off track to lure the homebuyers with discounts and freebies. In one of the extreme incidents a developer made a joke of his project in Delhi-NCR when his gift to the homebuyer was positioned as “Swine Flu free home”.

Analysts point out that these are signs of desperation in a sector battling with a number of challenges, including debt and slow sales.

India has a real estate market mired in debt piled up in a 2006-07 construction boom that gave way to a slowdown. Since then discounts and freebies are tried and tested marketing methodology of the sector but it is proving to be a dicey experiment in today’s context and it seems a section of developers have gone overboard in offering freebies and discounts and this is not just an Indian reality; globally the developers have received flak for going “out-of-the-mind” instead of out-of-the-box in their struggle for innovative ideas.

An advertisement for a house in Indonesia has gone viral online after the woman selling it offered to throw in an unusual extra feature for free — herself for marriage.

The internet ad reads for the most part like a regular house listing, saying that the single-storey property has two bedrooms, two bathrooms, a parking space and a fish pond. But it also proposes to buyers a ‘rare offer’ that says “when you buy this house, you can ask the owner to marry you”, alongside a picture of Wina Lia, a 40-year-old widow and beauty salon owner, leaning against a car in front of the house.

The ad says that terms and conditions apply, and notes the offer is ‘for serious buyers and non-negotiable’. The house in Sleman, on the island of Java, is on the market for 999 million rupiah (about $75,000).

In the conservative, Muslim-majority country many condemned the offer as a vulgar move to sell the house and yet be the owner. Even the police came to verify the news as they consider it as an improper advertisement. But Lia explained to them that it was not her idea. The mother of two explained that she had asked a friend who was a property agent to help her find a buyer and in the process a husband but she had expected him to pass on the news to a limited number of people, not put an ad online.

The Indian story is no different either. Since the over-supply is not where the market actually exists, Indian real estate continues to be a sellers’ market in spite of the slip called freebies between the cup of developers and the lip of homebuyers. “It is definitely not a buyer’s market,” says Palak Gupta, an event management professional, who was on a house hunt in the Gurgaon property market for a two-bedroom flat.

“Even in the wake of slow sales they are not ready to cut down the prices and instead resort to freebies which, more often than not, are more a gimmick than an actual benefit. I was offered a free air-conditioner and a refrigerator. Why should I get tempted when I already have it all? I was actually looking for some cash discount but the developer refused even though he could only sell around one-fourth of his inventory,” says Palak.

The developers’ lobby , however, sticks to the argument that homebuyers actually fancy these freebies. R.K Arora, Supertech Chairman, says the discounts and freebies are considered to be good at any given point of time, as these boost the sales and help in increasing the cash flows for the company. According to him, developers are offering innovative payment plans and freebies to strengthen demand of the people who are likely to invest in the real estate projects. “The festive season is always considered a good time for investments and the sale generally is very positive and upwards and that is the time when we prefer to offer something extra to our customers”, he adds.

However, these very developers are reluctant to offer tangible price cuts by applying the same logic of offering extra incentives to customers. “The land cost always appreciates and gives quick and better return than other assets. Developers always look to recover their basic cost first as there are not higher margins to lower the property prices. Moreover, the cost of input has increased a lot such as land, labour, cement etc, which puts extra burden on builders. At the moment there is no scope to reduce the property prices,” says Arora.

Ravi Saund, COO of JMS Buildteck, defends discounts and freebies as part of the Indian business ecosystem. According to him, these are basically tools to attract customers and have been used extensively even during the non-festive season. Realtors adopt this strategy to entice serious customers as the sales have taken a dip. “Freebies, discounts and incentives influence a buyer’s decision positively. In fact, at times these aid in preponing the decision”, he argues while debunking the lower BSP theory.

“A lower BSP is far from realty. Today buyers are well travelled, aware and aspirational. Their dream house is beyond mere brick and mortar. The developer not just has to spend on the marketing to build the brand, but on the development of the amenities and infrastructure of the project also. Channel partners have a say in the way our business functions. However, the scheme actually has to be in sync with the business plan and the character of the company,” says Saund.

Although it is too early to say whether such tactics will be enough to rope in upwardly mobile professionals and nouveau riche middle class, the scores of empty flats and unsold inventories challenge the marketing wisdom and strategy of these developers.

As of now, what is strikingly visible is that free parking spots, gold coins, motorbikes, iPhones or foreign tours that were advertised till recently are passé, now developers are competing among themselves to innovate freebies that could differentiate them in the market. Since the sector lacks fresh ideas some of the freebies turn out to be a brand disaster.

— The writer is CEO, Track2Realty

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