Property developers are Under pressure to offer easier payment plans, smaller units

Property developers are under pressure from customers to cut home prices or give discounts because of a slump in demand following the government’s shock decision to invalidate high-value banknotes.

While builders are still not cutting prices, they are offering easier payment plans and shrinking home sizes to fit the buyer’s budget this year. Most developers consider January to May to be the peak sales period and are leaving no stone unturned to convert enquiries into bookings. Pricing, along with factors such as the developer’s track record and the status of the project, are issues that a customer considers when booking an apartment.

“After the demonetization impact in November and December, customers have started coming back to project sites but they are hesitant and edgy. This is a critical time when one needs to give sweeteners to close the deal,” said Mayur Shah, vice-chairman of Mumbai’s Marathon Nextgen Realty Ltd. Marathon has offered stamp duty waivers of 2.5-5% on home purchases in a couple of its projects as well as easy payment schemes, where one pays 5% of the price upfront and the rest on possession. Shah on Friday said the different promotions have paid off and the firm has already seen 15 apartments getting booked in February.

Mumbai-based Kanakia Group has offered five different flexi-payment plans to homebuyers in its premium residential project in the Bandra-Kurla Complex. They are—10:80:10, 20:60:20, 30:30:40, 40:30:30 and 50:50. These are variations of the original 20:80 scheme, where a buyer pays around 20% upfront and the rest on possession. The payments are linked to construction milestones.

“Developers have to be competitive and practical about pricing. Today, profitability is not important, cash flows are. As an established brand, we may charge Rs 500 more than the market price but we need to know the kind of homes customers want,” said Faiyaz Rangwala, director, sales and marketing, Kanakia Group. To be sure, property prices have barely risen in most cities over the last three years. Home sales have been tepid and builders have been cautious to keep prices at the same level.

The Economic Survey on 31 January said that property prices fell due to a cash crunch following demonetization and could decline further as investing undeclared income in real estate becomes more difficult. But both developers and analysts say there is little room for more price cuts.

Bijay Agarwal, managing director of Salarpuria Sattva Group, said that there has been pressure on pricing, particularly in November-December when there was barely any sales. But the company didn’t give discounts because “that’s not the solution”.

“Though sales have picked up since January, we are discussing with banks to find a way in which the home loan can be split between the developer and the buyer, so that the buyer gets some comfort. Instead of a 20:80 interest subvention scheme, if the developer can pay 2-3% of the home loan, it will be more effective,” Agarwal said. If builders can’t cut prices, they can drop the sizes of homes. After close to three years, Mumbai’s Emgee Group is launching a new project with 700 sq. ft (built-up area) two-bedroom homes in suburban Chembur that are priced at Rs1.3 crore, two more sizes of two-bedroom apartments and 1,300 sq. ft three-bedroom homes at Rs2.7 crore.

“We are launching at par with market prices but we have reduced the size of homes and made the ticket size attractive. There is lot of pressure on pricing but in areas like Chembur the supply is low and we can hold on to prices,” said chairman and managing director Mudhit Gupta.

Kanakia Group’s Rangwala also said that people have a budget and it’s important to know what that is and design homes accordingly. In the National Capital region (NCR), which has been the most impacted property market in the real estate slowdown, prices have dropped by nearly 15-20%.

“Customers are hoping to get further discounts in NCR but there isn’t significant room for more reduction. If developers are entering into lower priced homes, that’s because it’s a matter of survival now,” said Anckur Srivasttava, chairman, GenReal Property Advisers Pvt. Ltd.

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