Over the past few years, the dynamics of residential real estate have undergone a major change that can bring positive tidings for the developers as well as the home buyers.
One major change being witnessed now in the residential segment is that festive season is no longer a saviour for the sector and developers, too, no longer consider it as a sale booster. There was a time when home buyers used to wait for the auspicious time to buy homes as they would get lucrative deals and discounts from developers. As a result of that, traditionally on pan-India basis the second half of the year would perform much better in terms of home sales as compared to the first half.
But this is not the case anymore. Debt-ridden developers sitting on huge unsold inventories have no option but to offer discounts and freebies over an extended time window now. In fact, these days in an end-user driven market, it is ‘festive season’ through out the year when it comes to good deals. As Mudassar Zaidi, Executive Director (North), Knight Frank says, “Last year, the festive season sale was much below expectations of developers. This is evident from the statistics which have emerged out of our July-December 2018 report of residential real estate”.
According to the report findings, 2018 saw total sale of 2,42,328 units. While the sale of residential units in H1 2018 touched 1,24,288 mark, it dropped down to 1,18,040 units in H2 2018. It is another matter, however, that this time the yearly sales were higher than the 2017 figure of 2,28,072 units in top eight cities across India.
With these changed dynamics coming into play, we may well see a marked change in the behaviour of buyers who have so far been staying away from under-construction homes due to development risks and higher transaction costs. And now with RERA settling in to fast-track project completions and government mulling a GST rate cut, under-construction property may get back some of its lost sheen. Sankey Prasad, CMD, Synergy Property Development Services, sees the move to cut GST rate as a sentiment booster that could spread optimism in the sector.
Market experts also believe that the forthcoming elections will only momentarily slow down the residential realty’s recovery for a couple of quarters, but these new dynamics are here to stay and will redefine the residential segment in the Indian real estate sector.
End user is the king
Another marker that is redefining the residential segment is the fact that the buying power of home buyers has gone up significantly. This has been made possible due to a number of factors. A key factor that has contributed to this is the fact that home prices have remained stagnant over the past few years. “Because of price check, investors, particularly speculators, have vanished from the market. So there are no price bubbles anymore”, says Kunal Banerji, a marketing and branding expert. Over the past few years, the weighted average prices across top cities have been stagnating. This trend was seen even last year. While NCR saw 1 per cent yoy decline in prices, Pune and Chennai witnessed a three per cent dip. The price decline in Bengaluru was 2 per cent and Mumbai saw the highest yoy decline of 7 per cent. Besides this price arrest, various policy measures like demonetisation and Benami Property Act also made things difficult for short-term investors.
Further the credit linked subsidy scheme under Pradhan Mantri Awas Yojana, changed the dynamics of housing market from investor-driven to end-user driven.
In the backdrop of this, the market also moved towards affordable housing due to government’s incentivised policies. Developers aligned to the needs of home buyers by right sizing and right pricing the units. Of late, lower ticket sizes have been the norm and these changed demand dynamics, affordability has considerably gone up, if one considers the Knight Frank Affordability Benchmark ( House price to Income ratio) of 4.5. The affordability index in NCR (5.0), Chennai (4.1), Bengaluru (4.0), Kolkata, Ahmedabad (3.0) and Pune (2.0) clearly point out the increasing home affordability, compared to a few years back when it was in double digits.
Affordability is getting a further boost with transaction costs coming down, especially in affordable housing. Already buyers of affordable homes are paying a lower GST rate of 8 per cent on under-construction homes. The government’s recent move to further bring down transaction cost by reducing GST on both standard and affordable housing will see affordability go up further.
— The writer is founder, Ground Real(i)ty media