Mixed fortunes for festive realty

In the backdrop of stagnant prices, rising interest rates, improving sales and recovering residential real estate, the current trends in the property market during this year's festive season, marked by the onset of Navratras, point to mixed fortunes in store for the real sector.

This festive season is marked by fading buying sentiment of home buyers, especially the millennials. As thousands of home buyers are struggling to either get their homes or money back due to stalled projects, prospective home buyers have become much more cautious. They are now more practical in terms of the safety of their investment and are not easily swayed by the sentiment of auspicious buying during the festive season. Rather, they look for safe investments coupled with attractive deals.

Of late, in the wake of the real estate slowdown, stagnant property prices and rising development risks, investors have been missing from the residential property market. And, with key reforms undertaken by the government to regulate real estate, the market has turned end-use oriented. And, as such, developers have to deal with tough and cautious consumers who are not easily lured away.

Adversely impacted by the absence of investors, developers in this festive season are worried about their under-construction home inventory as buyers are wary of touching projects which are in the development stage. Moreover, what is further going against under-construction projects is that deals on ready homes are more lucrative compared to under-construction homes. Rather, buyers of ready homes are better off with the saving of GST. As such, in the absence of better or even matching deals, under- construction homes may not find takers in the festive season.

This, however, has a silver lining in that sale of ready homes has been on the rise, with an Anarock survey revealing that 84 percent buyers want property which is ready-to-move or likely to be living-ready in six months. And there are logical reasons for that. Not only are buyers saved from development risk, they also save on 12 per cent GST. They also enjoy the benefit of income tax relief under Section 80C which is applicable only to completed homes with occupation and registration certificates. To top it all, the buyer is saved from the double burden of EMI and house rent. Keeping this in view, developers have been focusing on project completions and this inventory of ready homes will come handy for developers to push sales in this festive season.

Stagnant property prices and reasonable interest rates may well work in favour of developers. Though the interest rates have seen two consecutive hikes in policy rates, yet the status quo maintained by RBI in this month's policy announcement is encouraging for home buyers in the sense that they are still within affordable limits. Buyers may well like to go for home buying considering that interest rates will go up further due to economic turbulence and rising inflation due to increasing oil prices.

Further, the substantial interest subsidy available to buyers of affordable and mid-segment homes under PMAY has been pushing the sale of affordable homes, with 39 per cent buyers preferring to invest in homes priced below Rs 40 lakh. In view of this, developers have been keeping up the momentum of building affordable homes. As per the Anarock report, this segment saw a 65 per cent increase in supply in Q3 2018 against the same period last year. And, as the developers have lined up an inventory of affordable homes, they can expect good sales of homes from this segment.

NRIs are also turning to be big saviours for developers during this festive season as their investments have been on the rise due to the sharp depreciation of the rupee. According to a recent report by leading property brokerage, 360 Realtors, NRIs in the first two quarters of this financial year, already account for 25 per cent of overall sales. Developers are upbeat that during festive season between October and December, home sales to NRIs will top at least 30 per cent of the overall sales.

One distint trend visible during this festive season is that capital-starved developers are desperate to cut their unsold inventory to generate money. This is especially as they are starved of funds to complete their unfinished projects. Moreover, from this fiscal, they have been slapped with a heavy tax on their home inventory which is more than one year old. As such, they are out to offer best possible deals/discounts and buyers can make most of this opportunity during the festive season.