No festivities this season
Oct 13, 2012
Source : The Financial Express

 

The festival season has arrived for the realty sector. Dussehra is that time of the year when buyers look at sealing the deal and developers go all out to woo them. This is also the period when newspapers are awash with advertisements offering freebies. This year, however, the annual spectacle is subdued in scale. The major reason for this turnaround is affordability.
 
Most buyers believe that an important decision such as investing in a house should be done on auspicious days for that would lead to profit and happiness. Dussehra is accepted as the most auspicious day for home buying. It is in the run-up to this day that one witnesses a showering of freebies and other offers by developers across the country. This time-tested strategy is failing this year. Navratri would begin in a couple of days and so far, there is no rush at sales counters despite the usual advertisements making their appearance. After Dussehra comes Diwali, and buyers are not showing up.
 
“Considering the current sluggish macroeconomic conditions coupled with high home loan rates, it is expected that sales will not be up to expectations. To make the ensuing festive season promising it is important to offer attractive incentives. However, the offers are based on present needs and times,” says Lakshman Bhagtani, CMD, Jaycee Homes, a Mumbai-based developer.
 
Buyer is king
 
The “attractive incentives” range from the usual mixer-grinder, home furnishings, modular kitchens and at the higher end of the spectrum, premium cars.
 
Further, there are special offers and additional discounts, add-on benefits and surprise “spot gifts” such as gold coins or even a foreign junket to make the customer sign the dotted line. In Mumbai, for example, there was a case in which one lucky winner buying into a project is offered another flat as a prize!
 
For buyers who are still unmoved, developers have ventured a step ahead, offering waiver of registration costs or even the stamp duty cost. Many have tied up with banks for lower interest rates. Several banks are supporting the cause by “waiving processing fees and other charges”. One advertisement declared — “you take the loan, we pay the first EMI”.
 
Some developers have stuck to offering flat discounts on the apartment price. One offered a discount of up to Rs 2 lakh per flat, and another offered a per sq ft discount of 5-8 per cent if six buyers teamed up and bought as a group.
 
A big name in the sector announced lower booking amount to the tune of 20 per cent of the total cost and the rest 80 per cent to be paid after possession. Another lesser known developer went further and announced 10: 90 scheme.
 
Developer’s dilemma
 
These gimmicks aimed at exploiting the buoyant mood are falling flat this year. Usually this period marks a 25-35 per cent increase in sales every year. Transactions, so far, have fallen by 20-30 per cent on a year-on-year basis. The trend seems to continue for the next month too.
 
A report by leading stock broker Prabhudas Lilladher on the real estate sector states that in Mumbai, sale registrations have slipped 3 months in a row by 5 per cent on a month-to-month basis and 2 per cent on year-on-year basis. Lease registrations have also gone down by 17 per cent on a month-on-month and 10 per cent on a year-on-year basis. Similar trends have been seen all over the country.
 
“Recently, when the finance minister appealed for price reduction, the developer community feigned helplessness as it was unaffordable for them. The question is, how can the same people afford the discounts and freebies now?” asks N Desai, a prospective buyer who is looking for a home in a distant western suburb of Mumbai.
 
Developers are caught in a dilemma. Sales are low. Hardly any new projects have been launched. Lakhs of flats are lying vacant, especially in the National Capital Region and the Mumbai Metropolitan Region. There is a huge inventory of unsold flats and they are keen to dispose them and unlock funds. But they are unwilling to reduce the price.
 
“In most cases, developers have the financial wherewithal to stay firm on their official market prices. They see little sense in marking down their price tags and possibly signalling what, from the buyers’ perspective, is a long overdue correction. The alternative strategy is often to announce incentives. However, because the base pricing of the units reduces their margins, these incentives tend to be far from extravagant,” says Shajai Jacob, Head–Marketing, Jones Lang LaSalle India.
 
The smart buyer
 
Buyers clearly are no longer impressed with the illusion of great savings, for they have realised that the value of the freebies is far less than the amount they have to cough up. Further, they understand that there is no free lunch, and that the cost of freebies is already included in the apartment cost, so the developer is not extending a favour.
 
Freebies also come with a catch. For example, the 10:90 schemes could boomerang. The scheme indicates desperation for cash, which means there is a high possibility of delay or non-completion. Buyers are also aware that no businessman would cut below his cost, not even during the festival season. They know that there must be still some scope for reduction in the price.
 
“The Indian middle-class is a highly price-sensitive, and the current buzzword in this market segment is ‘correction’. The budget-conscious buyers are more concerned with how much the EMIs will impact the family budget,” says Jacob. The general perception is that price reduction will come through. This isn’t happening yet.
 
Buyers are aware that most developers may not officially commit, but are willing to negotiate when the buyer is serious about the deal and is ready with his fund-arrangement road map. Buyers know that a hard bargain may land a 4-10 per cent spot discount.
 
“One should not get carried away by the attractive ads during the festivals as one may risk the earning of a life time on a wrong card. The home-seeker should be able to compare all and identify the correct one among the bouquet of tricky traps,” says Pankaj Kapoor of Liases Foras, a property research firm, adding that “until the prices drop by 33 per cent, the movement will not come”.
 
As this looks difficult, as of now, the stalemate would continue and nothing else will matter,neither freebies nor festival. 

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