Bottom Line: The developers might be resistant to price cut but the price correction is a reality today in secondary market.
Swadeep Sharma was on a house hunt in Noida for the last two years. Last year he could find a house of choice at one of the newly delivered projects in Noida Expressway at INR 5600 per sq feet. He could, however, not manage his finances then. Now that he has managed his finances, he went to the same location anticipating shelling out more money. He was, however, taken by surprise. The apartment in the same society is today available at INR 4800 per sq feet.
Is this price crash? Can it be termed as market correction? Whether the investors are exiting with distress sale? Or the housing market has started getting rational with price point? Whatever the case may be, it definitely sounds like a buyers’ market today.
“First I thought I am getting the deal that is a distress sale. But on being probed I found out that this is the prevalent market rate in the locality. However, none of the developers in the micro market have reduced the price. I asked the first owner and he said he had bought at INR 3000 per sq feet six years back at the time of launch,” Sharma elaborates.
This homebuyers’ experience tells a reality of property market that the developers would feel comfortable to sweep down the carpet. A price appreciation of 60% in six years is not something that makes the property best investment instrument.
More importantly, the fall in price point in secondary market, ranging between 10-20%, sends a very strong message to the developers. It suggests they will have to keep waiting for the buyers if they don’t reduce the prices. Sitting over a record number of inventory the developers are trying their best to sale the inventory and serve at least the interest on debt comfortably.
Requesting anonymity, a Ghaziabad-based developer admits that there is a sharp correction in the secondary market transactions. According to him, for the developers there is no room for any price cut due to high input cost and the overhead cost. But the retail investors in the housing market are spoiling the market.
“We are today paying the price for selling our inventory to non-serious homebuyers. They have turned out to be investors. They don’t have patience to wait and reports of price correction in the media is making them nervous to get into what at best can be described as the distress sale,” says the developer.
It is debatable whether a profit of 50-60% in the last five to six years could be dubbed as distress sale. The property market nevertheless stands today as a ‘no man’s land’ for the speculators who wish to make a quick buck.
The former RBI Governor Raghuram Rajan had also made a strong case for reduction in property prices given the high inventory of unsold flats across the country.
“If real estate developers, who are sitting on unsold stocks, start bringing down prices, that will be a big help to the sector because once there is a sense that the prices have stabilised more people will be willing to buy,” said Dr Rajan.
Well, the developers may not be paying heed to the advice of the RBI Governor, but the market forces active in secondary transactions seem to have learnt their lessons ahead of the developers. As a result, the price correction in the secondary market becomes indicative of what is inevitable in the housing market. The price rationalisation can only be delayed but not denied, it seems.
By: Ravi Sinha