Resale prices down 30% as realty sector feels the heat

Prices of residential units in the re-sale market have fallen by up to 30 per cent in some locations as the real estate sector gets more realistic post-demonetisation in an already tepid environment.

The difference in price between primary and secondary residential markets is increasing, following the over-supply of properties and eagerness of investors to cash out, making re-sale properties a good option for home buyers.

“There is downward pressure on prices as the unsold inventory is huge. Moreover, there is no outlook for growth right now. Those who are already sitting on properties want to exit because if the market is depressed further, they may get an even lower rate,” Pankaj Kapoor, Managing Director at real estate consultancy Liases Foras told BusinessLine.

Some markets like the Delhi-NCR, Pune, Chennai and outskirts of Mumbai Metropolitan Region, have been showing substantially lower price in the secondary market than the primary market.

In Dwarka Expressway and Sohna in the NCR, the prices in resale market are less than new supply by anywhere between 20-30 per cent, pointed out Sanjay Sharma, Managing Director of Gurgaon-based real estate consultancy and brokerage firm QuBrex .

Investors in a project called Chintels Paradiso in Gurgaon are selling flats at ₹4,900 per sq ft even as the builder has not reduced the rate from ₹6,500 per sq ft. In Chennai’s Vijay Shanthi Pond project too, the asking rate varies from ₹2,600 per sq ft to ₹4,200 per sq ft depending on the seller’s urgency to exit. “Earlier, the second-hand market prices were pegged to the builders’ price for the same property. But today, the prices are independent of the primary market and are based on supply-demand and have hence fallen. The overall economic scenario was already bad and demonetisation has dealt a death blow,” says Sharma.

Ashutosh Limaye, Research Head for JLL India, agrees that the resale market is cracking. “The prices are down. While the number of sellers is less, the desperation level is higher and they are likely to compromise a lot more than before,” he added.

Amit Oberoi, National Director, Knowledge Systems at Colliers India, says: “The world has changed post demonetisation. There aren’t too many transactions in the market. And the secondary market is seeing lower price than the primary market because developers have not reduced the rack rate much.” Sharma’s firm has done only two transactions in the last 40 days, in contrast to the 25-30 deals he did during better times.

Kapoor points out that resale properties have no execution risk, as they are mostly ready. “A buyer does not have to pay service tax too, on second hand properties.”

Limaye believes the secondary market will remain soft, particularly in NCR, for the next few months. “Any investment decision now has to be seen in view of the tenure. If a buyer wants to stay invested for more than five years, it is a good time to buy but it is not the right time now for short-term returns,” he adds.