Home prices could drop

Real estate developers are realising that they cannot hold on to inventory forever. Until now, they had shied away from lowering prices, but now, they will have to book sales to gain some liquidity.

The slowdown is forcing investors — those looking to make quick capital gains — to find a real buyer and cash out. “They need to book losses now as the end user is no longer willing to pay unreasonable rates,” says Pankaj Kapoor, MD of Liases Foras.

That means price cuts. And freebies to lure customers. Already, builders are offering free ACs, modular kitchens, iPads, gold coins and even cars with homes.

With the coming festival season, there should be more such inducements as developers try to rack up sales. Already, a home buyers’ festival in Mumbai, which brings together developers and potential buyers, is advertising a cash-back offer of up to Rs 50 lakh. One developer is offering an international holiday to rope in buyers.

Tough market

CBRE MD Anshuman Magazine says that project launches in the mid to high range are seeing a correction. And so are under-construction projects.

But will all this be enough to bring buyers back to the market? Probably not.

“Our salaries have not increased in the last two years. While buying a house is the top priority for me and my husband, I think it would be prudent to wait than stretch our finances during times of uncertainty,” says Vijaya Krishnan, a Mumbai-based advertising professional.

Shwetank Pandey, working with a bank in Delhi, says he will wait till early next year before making a decision. “Prices may fall further just before elections. March-April will be a better time to purchase a house,” he says.

And this is where the risk lies for developers. They are willing to give concessions, but there might not be many takers right now, leading to tougher times in the quarters ahead. There have been job and pay cuts across sectors, and inflation has increased the cost of living. Worse, any economic recovery will take time.

All this is enough to keep those looking for capital gains sceptical about investing in housing right now. As Lalit Kumar Jain, Chairman of CREDAI (Confederation of Real Estate Developers’ Associations of India), says: “When sentiment goes down people don’t buy even at a good price.”

Right time for buyers

In his advisory to developers last month, Jain has suggested they “sell at your bottom most possible rates and create liquidity; cut costs at all levels — administrative, marketing and construction. And create awareness about sales and prices going down”.

Sell at lower rates and get cash: that seems to be the only formula for developers to keep going right now.

“It is important to get liquidity right now,” explains Jain.

For home buyers, it could just be the right time to go ahead.

Nevertheless, CBRE’s Magazine says buyers need to be cautious: “There are too many moving parts; there is too much uncertainty. Anybody putting in money now will have to take a longer term view as it may take up to three years for prices to appreciate in a slow market.”

He adds that buyers need to do some due diligence. They need to study the background and execution ability of a developer, the location of a project, and the infrastructure and scope for improvement in prices in that location. These are the factors, that will decide the property’s valuation for a future sale.

But for those looking to buy a house for use and not for capital gains, immediate appreciation is not a concern. They could consider taking the plunge now.

> rashmi.p@thehindu.co.in

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