No escape from the fall

Ravi Sinha

To say that there has been no price correction in the residential market would amount to echoing the denial theory of builders across the country today. It is not the stern stand of the Reserve Bank of India Governor or the suggestion of the National Housing Board CEO that has prompted the developers to think rational in terms of their price point and profit margins. Rather, the market forces are increasingly compelling the developers to offer substantial discount to get rid of rising inventory and debt burden.

As a result, there has been a price correction of 7-12 per cent across the country; with North Indian markets been witness to the most severe price cut.

Though officially no developer would like to admit it and even the CREDAI has been rhetoric with their oft-repeated cribbing of rising input cost and higher borrowing cost. To a large extent this is the face- saver of the Indian real estate that would like the homebuyers and the collective consciousness to believe that any price cut is not possible.

However, requesting anonymity a Gurgaon-based broker admits that the developers are today offering anything between 11-16 per cent, with the condition that the brokerage will not exceed beyond 3 per cent and the rest of the discount will be discount offer to the homebuyers. Officially no developer is ready to admit this prevailing market trend but those active in the property market are well aware of this market reality.

Call it discount or marketing strategy or distress sale, but a price cut is definitely there in the market.

Discounts vs price cut

On the eve of the festive season, this raises a fundamental question as to whether there will be more price correction or it will be the usual festive offers of freebies to attract the buyers.

The answer is both yes and no, depending on who is addressing the question. While the analysts believe yes, the developers seem to be in denial for obvious reasons of face loss.

A diplomatic Vineet Relia, Managing Director of SARE Homes says that in India, buying a property has always been a very vital and auspicious decision. However, nowadays a slight change can be witnessed in this pattern, as these days sales are transacted throughout the year. Festive season can be one of the factors impacting the buying decision but not the only one. What customers are looking forward to, is an ideal offering within their budget.

“Keeping the festive season in mind there are possibilities of introducing easy financing schemes, which would help in negotiating potential buyers. For individuals who are well on the way to purchase, such offers assist in settling on their choice towards a specific project or developer,” says Relia.

Harindra Nagar, Managing Director of Paras Buildtech, agrees that the onset of festive season will trigger a buzz in the market with more buyers flocking the market.

To cash in on the opportunity and to attract maximum buyers, most of the developers are expected to offer attractive discounts during the upcoming festive season with some of them may also reduce their BSP to some extent. He, however, does not agree that a substantial price correction is on cards.

“The adverse market condition is preventing the developers from offering any significant price correction. I don’t think there would be any drastic price cut during festive season. However, the real estate market is expected to witness a range of innovative discount schemes and freebies. The property market this year is already abuzz with various activities, with many developers offering attractive schemes and freebies to increase their sales,” says Nagar.

Arvind Jain, Managing Director of Pride Group is also dismissive of price correction when he says that hard discounts will not be much in evidence. In the first place, the very fact that cash flows are strained means that developers will not see discounts as an option. Secondly, most developers feel that announcing price cuts can send counter-productive signals to the market. That said, there are other ways of making purchase of their properties more cost-effective for buyers, and such measures will be widely used to attract buyers.

“Every festive season is different, because different macro-economic variables are at play every year. This year, we are looking at a scenario where there is renewed economic stability, and property buyers are able and willing, yet cautious. It is an interesting sentiment mix, and one which developers will have to address with considerable savvy in order to tap it,” says Jain.

Hobson’s choice

Beyond this denial theory of price correction on part of the developers, there lies the gigantic issue of rising inventory and unbearable debt burden of developers. Many of the developers are today constrained with the operative cash flows.

The situation is so worse for some of the developers that their funding options are very limited. Some of them are even raising fresh funds from private sources at 4 per cent monthly interest (that amounts to 48 per cent yearly) to serve the debt that they had earlier raised at 13 per cent when the going was smooth. For how long can such developers delay their inevitable fate?

Independent analysts in the market hence believe that the festive season would be the beginning of the Indian housing market turning into buyers’ market. The price correction that is happening below the table may come up over the table and the developers will start competing with each other to dispose off the inventory liability.

Many of the homebuyers are also holding on their purchase decision till the beginning of Navratra. Their search for a home has made them aware of the ground realities of property market where they are taking any discount in single digit a taken reality. They are, therefore, expecting price correction in the double digit now; something that may revive the housing sale, revive the economic cycle of the business and also do a world of good for the future growth of the sector. The Indian real estate can no longer afford to live in the denial theory of price correction.

— The writer is CEO, Track2Realty