Property Prices Slashed Due To COVID-19: Reality or Façade?

Property Price Cut
Property Price Cut

During the beginning of the onset of COVID-19 crisis, it was being said that real estate prices will fall sharply. Almost near-stagnant demand, huge inventories and a spate of repo rate cuts by the Reserve Bank of India paved the way for heavy slash in prices. However, real estate prices are yet to see major dip and house still remains as unaffordable as before.

From 2010 to Q1 2020, average property prices in India’s top seven cities rose nearly 38 per cent, from Rs 4,063 per sq. ft in 2010 to Rs 5,599 per sq. ft. The highest growth was in Pune, at 67 percent, while the national capital region (NCR) saw the lowest growth, at 19 per cent. The top cities of Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune have unsold real estate inventories at 455,351 units across worth about Rs 3.7 lakh crore in Q1 2020.

With the country going into complete lockdown from March 25, the real estate experts as well as ministries cautioned the developers to slash prices and sell the inventory. Deepak Parekh, chairman of HDFC, had said in mid-April that he expected real estate prices to fall by up to 20 per cent due to the lockdown. Later, Piyush Goyal, union minister for commerce and railways, had asked developers to reduce inventories by reducing prices, rather than getting stuck with unsold units and seeking government succour. 

However, the suggestions seem to have not gone well with the industry and  developers are mostly maintaining their prices. The segment has been badly hit in pre-COVID-19 times with economic stress in certain segments, high leverage, tight liquidity and rising non-performing assets in construction finance.  Plus most of the developers reportedly admit that there have been price corrections in the past three or four years, and developers have pared prices “to the bone.”

Moreover, several developers feel that that issue is less of supply side and more of demand side and that there is no point in a builder offering heavy discounts if they are not confident of a surge in sales. However, that does not mean that they are not perplexed by the rising inventory and slow business.

“This is not a supply-side issue, but a demand-side one,” India Today quoted Ram Walase, MD & CEO of VHBC Value Homes, as saying. “Also, it is not [guaranteed] that customers will walk into the site if you give discounts.”

Developers are coming up with various lucrative offers to attract buyers including refundable booking amounts, cashback schemes, flexible payment plans and freebies on booking are some of the popular offers. Paying 10 per cent at booking and the remaining 90 per cent on possession, booking a property by paying Rs 1 lakh while the remaining booking amount can be paid over the next 100 days, offering cashback of 5 per cent of the property cost if it was booked during the lockdown period and offering additional amenities are some of the popular schemes that are being used to attract buyers.

Real estate prices may not be seeing a dip lately but developers have been offering 5-10 per cent discounts on a case-by-case basis. In Mumbai, some luxury properties have seen prices reduce by 20 to 25 per cent, while rentals have also fallen in high-end properties by up to 25 per cent. However, real estate experts maintain that such price cuts are being negotiated on a case-to-case basis and are not the average fall in prices. 

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