Discounts And Freebies Drive Demand In The Real Estate Sector

February 28, 2020
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Home sales are returning to pre-pandemic levels following lucrative offers and discounts by certain developers. How are these ‘attractive’ offers driving buyer sentiment while also keeping the real estate industry afloat? We tell you

Home-buyers tend to time their real estate purchases around festive seasons, as the timing is auspicious and people are generally in a celebratory mood. Naturally, to attract home-buyers, builders roll out several offers and discounts to stay ahead in the market. However, when the pandemic hit last year, every industry came to a screeching halt, but the offers didn’t. Wonder why?

Niranjan Hiranandani, national president, NAREDCO, explains, “Festive promotional offers are meant to boost buyers’ sentiment and confidence. When their ideal home is available at a favourable price for a limited time, the urgency to seal the deal increases. Once the pandemic hit, people were wary of making big purchases, and developers offered discounts or add-ons at no extra cost. This was to ensure that the unsold inventory, which makes the balance sheet look weak, can be sold off at the earliest. The discounts and add-ons offered during the lockdown helped developers ensure liquidity and cash inflow, even during tough times. Once they hit their sales targets, these discounts and add-ons are generally discontinued.” 

Housing on the growth path
The discounts weren’t a futile attempt, according to the Indian Real Estate: H2 2020 report by Knight Frank India. The top eight cities in the country sold close to 94,997 units during H2 2020, despite the pandemic. This was close to 54 per cent of the 2019 quarterly average. Experts believe that this was possible due to the decadal low home loan interest rates, reduced stamp duty, and reduced ready reckoner rates, thus making it a win-win situation for buyers and developers. Mumbai and Pune markets led the revival in terms of both, sales and launches. The two cities witnessed a record rise in sales by 193 per cent and 143 per cent respectively. Not just Mumbai and Pune, home sales gained momentum in many of the leading metros of the country too (see box). Now with the second wave causing havoc across states, home sales are likely to be hit.

Where does the buck stop?
Further explaining the price trajectory, Hiranandani says, “While the quantum by which prices are made ‘attractive’ differs based on project’s economics and the developer’s ability to reduce prices, the regulatory aspect also needs to be factored in. There is a circle rate or a ready reckoner rate, which has a percentage fixed by the law, below which any pricing results in penalties being levied on both, developer and home-buyer.” Thus, it is safe to say that prices can drop only till a certain point and not further.

“Stamp duty reductions are important to drive housing demand and push the realty sector out of the crisis. Although the sales momentum has slowed, developers are now enticing home-buyers with lucrative offers. Furthermore, with the current price ratio and rising raw material costs, developers are already working on low margins. Hence, decreasing the cost further will create a cost-to-cost environment for developers that will, in turn, create a large hurdle making it tough to keep the business operational,” says Rohit Poddar, managing director of a real estate development company.

Now is the time to invest
“Over the last five years, residential prices have remained almost stable resulting in housing being affordable until early 2020,” says Manju Yagnik, senior vice-president, NAREDCO West. “This is not a time to adopt a wait-and-watch approach. Buyers today are well-informed and clear about what they want in their dream home. If the prerequisites are met, only then would they venture into a long-lasting relationship with a trusted developer. This is the most lucrative, competitive pricing, which is not likely to dip any further. Hence, we consider this a great opportunity for home-buyers,” says Ajay Kapoor, CEO of a real estate development firm.

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