Property Prices Start Falling In India’s Costliest Real Estate Market
Residential and commercial buildings are seen from a show home at Lodha Altamount, a luxury residential project developed by Lodha Developers Ltd., in Mumbai, India Photographer: Dhiraj Singh/Bloomberg  

Property Prices Start Falling In India’s Costliest Real Estate Market

Property prices have started falling in Mumbai, India’s costliest real estate market, as developers offer discounts to counter a liquidity crunch aggravated by the pandemic.

Prospective homebuyers can bargain for a reduction in prices, besides flexible or deferred payment schedules, BloombergQuint found in its conversations with developers, brokers and consultants.

Real estate companies were luring buyers with easy payments and interest waivers till possession even before the pandemic as the sector grappled with a prolonged slowdown. Developers found it difficult to raise funds after capital-starved non-banks cut lending following defaults by IL&FS group two years ago. That worsened an inventory pile-up. The Covid-19 freeze further dented demand, and Piyush Goyal, railway and commerce minister, made it clear they shouldn’t count on any special help from the government.

In the Mumbai Metropolitan Region, developers and sellers are offering discounts to genuinely interested buyers to lock the deals, said Bhavin Thakker, managing director, Mumbai at property adviser Savills India. “In the mid segment, we are seeing 5-15% discounts. This includes add-on freebies such as modular kitchen, white goods or a car.”

For luxury apartments, Thakker said investors are looking for a 30-35% cut in price. “Such deep discounting is simply not feasible for developers given their costs. But they are offering more realistic discounts in the range of 10-15%.”

About 70% of the projects in Mumbai saw prices fall in May and June, according to Propstack, a real estate data analytics platform that analysed registration data available for 275 projects.

Property Prices Start Falling In India’s Costliest Real Estate Market

The majority of deals registered during the May-June period were locked prior to pre-Covid, Sandeep Reddy, co-founder at Propstack, told BloombergQuint. “It appears that homebuyers are renegotiating before registration for better pricing because of the impact of pandemic. These are early trends and registration data of subsequent months will show clearer trends.”

Existing owners who hold real estate as an investment are offering discounts in the secondary market.

The Covid-19 setback has created flexibility in the secondary market deals for residential and commercial properties, said Ramprasad Padhi, a real estate adviser and founder, Mumbai Properties Consulting Pvt. “Some owners have cut rates of residential properties by 10-15% for buyers with ready payment. Others who aren’t finding new buyers have started renting.”

Property prices have also fallen in the Delhi-National Capital Region, India’s biggest real estate market.

Sales tumbled to 25-30% of the pre-Covid levels of January-March in Delhi-NCR, said Samir Jasuja, founder of PropEquity, a real estate analytics and research firm. “Developers are coming with offers and subvention schemes. In luxury and mid-segment, prices have corrected 10-15%.”

According to Jasuja, large branded developers such as Godrej Properties Ltd., DLF Ltd. and Tata Realty Ltd. clocked good sales during the period. But Delhi’s secondary market hasn’t seen much traction, he said, as sellers don’t want to lower prices by more than 10%.

Big developers said they have been flexible rather than compromising on price.

Large Developers Offer Flexible Repayment

Mahindra Happinest offers buyers payment flexibility. “It was more about cash flows and less about price,” Vimalendra Singh, chief sales officer at Mahindra Happinest, said. “We’re working with customers on a case-by-case basis, helping them by adjusting payment schedules to their anticipated income flows.”

June, he said, was the best month in the entire quarter as business came back after India stared easing the lockdown curbs. “Gradually, as things opened up, the sentiment improved significantly. We saw increase in site visits, inquires have gone up across the affordable as well as the mid-premium segment. Customers are willing to close the transactions as well.”

Godrej Properties also launched a ‘Hope Has A Plan’ to offer flexible repayment options to homebuyers. The company allows customers to pay 10% at the time of booking and the remainder near completion, according to Mohit Malhotra, managing director and chief executive officer.

Possession date in each project varies from six to 24 months. “Whatever is the interest cost, we have loaded that in the price,” he said. The plan worked well as it helps customer to tide over short-term uncertainty, he said, adding that the company didn’t have to cut prices in the quarter ended June. “We have good traction in our sales.”

Oberoi Realty Ltd., another Mumbai-based developer, said the company hasn’t reduced prices. “There will be an increase in demand for premium projects that offer space, comfort, and amenities and that are ready to move in or closer to completion,” Vikas Oberoi, chairman and managing director, told BloombergQuint. “This supply will not increase in the foreseeable future as new launches have come to a standstill due to shortage of labour and availability of finance to most developers.”

Oberoi Realty, too, offers flexible payment schemes. Oberoi said for its Esquire project in Goregaon in suburban Mumbai, the developer allows a buyer to pay 25% and move in, and pay the rest in instalments of 15% each over five years. For another under-construction project in Mulund, buyers can pay 10% and book, besides getting a part refund of stamp duty and registration charges.

Lodha Group, among the big developers in Mumbai, has yet to respond to emailed queries.

Not all developers, however, have the financial strength to hold on to prices. More so when the sector was in deep stress even before the pandemic struck.

“The market isn’t driven by big developers who have sound balance sheets. They contribute just about 5-10% of the total supply,” said Pankaj Kapoor, founder and managing director at property consultant Liases Foras. “The market is bound to undergo price correction, driven by stressed small and mid-sized developers. When that happens, even the big players will be affected. When the sea recedes, all the boats in the sea are affected.”

Read The Fine Print

While developers and property sellers may be willing to offer discounts and payment flexibility, is it the right time for prospective homebuyers to take the plunge? Particularly when the pandemic has decimated consumption and India’s economy is on track to contract the first time in four decades.

Padhi said homebuyers need to fully understand the schemes offered by developers. Payment flexibility plans may address buyers’ liquidity issues for now, but they will have to bear the interest cost later, just like the loan moratorium schemes. “It’s advisable to study these plans carefully before opting for them.”

Paresh Karia, chief executive officer at Mumbai-based realtor Acquest, also advises buyers to not get carried away by attractive financial schemes. “Select only those which meet requirements.”

But that doesn’t mean buyers should defer their plans. “If you find a home that you like and can afford, then you should go ahead and buy it without waiting for the perfect time,” he said. “I don’t think the prices will fall significantly from the current levels. There is a good inventory of ready-to-move homes available to choose from and that too at bargain prices.”

Bhavin Thakker of Savills said if a property is intended for own use, this is the good time to buy since prices are low. But he cautioned against buying real estate as an investment. “The return on investment could be potentially low at this point given the uncertainties.”

Also read: HDFC’s Deepak Parekh Bats For One-Time Restructuring Of Real Estate Loans

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