Push And Pull Of Real Estate Prices

Commerce & Industry Minister Piyush Goyal has strongly advised builders to sell projects at reduced prices to clear unsold inventory. Is it as simple for developers to do that or there is more?

Real estate in India, especially in tier-1 cities, is a huge affair. Amidst the COVID-19 pandemic outbreak, the demand has diminished drastically  though it was already on a down trend for the past few quarters. Is cutting the prices the only way to get sales back on track and survive this downturn?

The issue of price cutting by the developers has been going round in the segment lately for some time. The Union Minister of Railways and Commerce & Industry Piyush Goyal’s recent advice to builders to sell projects at reduced prices to clear unsold inventory has put the issue on the fore.

Speaking at a webinar hosted by NAREDCO, a real estate association, Goyal unleashed the blunt declaration.

“If any of you feels that the government will be able to finance in such a way that you can hold longer and wait for the market to improve, the market isn’t improving in a hurry. Things are seriously stressed. And your best bet is to sell.”

Real estate developers’ habit of holding on to high-priced inventory is not a well-kept  trade secret. While Goyal’s statement is being supported by the voices across the sector, many external factors beyond the control of developers are being pointed out due to which prices can’t be slashed further. One of the primary factors pointed out is reckoner rates.

The Ready Reckoner Rate is the standard value of an immovable property assessed and regulated by the respective state government in which the property is established. If  a developer tries to sell below the set rate, he attracts a huge I-T penalty in case of violation ultimately making the seal much more expensive.

“Reducing real estate prices is a theoretical proposition as the I-T department will penalise you” Niranjan Hiranandani, President, ASSOCHAM & Co-Founder & Managing Director, Hiranandani Group, told Times Now.

Hiranandani further added that the government will either have to change the ready reckoner rate or change the law. 

However, many real estate experts feel that reckoner rates are just another excuse card being played by the developers. As realty expert Vishal Bhargava points out, in most locations of Mumbai, market rates are well above the ready reckoner rates.

“There is ample space to cut rates. Even if it is done at a level lower than ready reckoner – it isn’t always complex.”

Developers too obviously aspire to increase their sales of available inventory. Many of them claimed to be operating already at lowest possible prices. In fact, to attract buyers and build demand, they are offering buyers easier payment models like a No Pre-EMI offer and lesser down payments, additional incentives to buy, such as price protection schemes, flexible payment plans, and offers such as waiver of stamp duty and registration charges.

But can cutting the prices alone save the Indian realty? With a sector with an already bad track record, buyers are going to stay away from under-construction projects by infamous and smaller-unknown builders no matter how much the prices get slashed.

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