During good times, the festive season, considered auspicious for home buying and offering bargains, contributes over 30 percent of annual realty sales. But with the prevailing depressed market sentiment, the sector has been witnessing muted sales since the festive season of 2014 when merely less than 100,000 housing units were sold in the top eight cities, recording 30-40 percent lower sales compared to the healthy period of 2010-11.
After a sluggish 2013, last year, despite hopes of market sentiment improving following installation of a new reform-oriented government, housing sales did not pick up during the festive season. So much so that the efforts of the developers to extend the festive season of 2014 into the New Year, right up to the festive season of 2015, offering various incentives and promotional schemes to boost sales, has drawn a blank. What’s more, the upcoming festive season has more or less lost its novelty.
The cause of real concern this time, is that even the luxury housing sector, so far considered recession-proof, has been hit hard by the slowdown. The situation has got further aggravated as even the end-user driven markets like Bengaluru have been badly affected. It’s a double whammy – while end users have deserted the market due to unaffordable prices and lack of safety of investment due to projects delays, investors too have withdrawn due to low price appreciation and exit hurdles.
High inventory levels are a big dampener for the residential real estate with one international property consultancy putting it at over 700.000 units (NCR, Mumbai and Bengaluru being worst hit) with three years of absorption period. The gravity of the situation can be gauged from industry statistics, which put the value of unsold houses in the affordable and mid-segment category in top seven cities at about Rs.4 lakh crore ($60 billion), with additional Rs.1 lakh crore value high-end homes lying unsold. Project delays of up to 3-4 years in many cases, especially in the absence of real estate regulation, is denting the buying sentiment. The investors’ spirit is also dampened due to the land and GST bills stuck in parliament, besides stock market turmoil and fears on the black money bill.High interest rates are further bugging the realty sector, especially as even a 75 bps rate cut effected early this year has been only partially passed on to consumers.
One major reason for not expecting any extraordinary response from this year’s festive season is that over the past one year, the real estate companies have exhausted all marketing tricks to woo home buyers.Besides offering standard freebies like parking and club facilities, modular kitchens, air-conditioners, furnishings, cars, foreign trips, gift vouchers, they have even tried flexible payment plans with subvention schemes without much success. For the first time ever, developers are taking just 5-10 percent of the house price as booking amount and that too in installments, with the balance payment on possession. Also, it is for the first time that developers of luxury homes have been resorting to possession-linked subvention schemes, besides giving offers like a three-bedroom apartment at the cost of a two-bedroom apartment. They have been themselves holding property exhibitions in India and abroad, besides participating in the ones organised by big brokers. Even their attempts to tie up with property portals and e-commerce sites have been of limited help and that too in case of boosting sale of affordable homes.
But then, all is not lost – there is upside as well. Ready-to-move properties have shown good response because these do not carry the risk of delivery defaults. Many of these properties are being offered even at discounted rates. NRIs are also showing interest due to rupee depreciation turning homes cheaper. Real estate companies have also devised a marketing strategy to reduce average apartment sizes to make the ticket size more affordable and attractive. In the NCR, the waiver notification on the Okhla ESZ has come as a big boon to home buyers of Noida around this zone where about 3.5 lakh flat bookings were stuck due to National Green Tribunal ban. This is expected to boost the market sentiment with substantial increase in home sales in the coming weeks.
Real estate developers are also expecting an interest rate cut in the next policy review by RBI on September 29 to boost the festive sentiment and push home sales. Real estate analysts and market experts are of the opinion that unless there is a trigger in the form of a price cut, the festive season may not bring cheer to real estate companies by way of substantial pick up in home sales.
Festive cheer may elude real estate sector added by Indian newspaper Sydney on
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