REALTY SECTOR – THODISI TOH LIFT KARADE!

The real estate sector is really having its very own, personal pandemic – a virus called uncertainty which has kept them and their books in a state of constant peril. Even after the Covid gets a cure/vaccine, the realty sector is likely to take a long time to nurse back to good health.

Asked a realtor what he had to say about Piyush Goyal advising developers to sell inventory at lower prices rather than going bankrupt.

Keeping the temper very much under control but visible in his voice, he said, “People are not buying anything, neither residential and definitely not commercial. Prices cannot go down any further except for those builders who have a huge debt to service. For majority of us, who have the holding power, the prices have bottomed out vis-à-vis the costs.”

So then why aren’t people buying if prices are today at its lowest? The anticipation that the holding power will end and they will be forced to bring the prices down – be it stocks or realty, everyone wants to catch a falling knife. This is true for those looking to buy houses in the mid to super luxury segment. In the affordable housing, it is unlikely that there will be any major correction.

A few builders we spoke to said that ready-to-move-in flats are having some inquiries and they are currently going at a discount of 7 to 10%. Some builders, instead of giving an upfront discount on the price are offering ‘perks’ like no EMI for a period of one year while some are giving the option of deferred payment – pay 10% now and remaining 90% on possession. It is the luxury housing which is seeing the biggest drop in prices – almost around 20-25% fall.

Th stories that we hear about someone buying an apartment at Rs.6 crore instead of Rs.8.5 crore quoted three months ago are mostly anecdotal. They do not reflect the actual drop in prices on a macro level – such “bargains” happen when the seller is in distress and he needs to liquidate the property to tackle with his own debt issues.

Thus the various price drops that we will see, will essentially come from distress sellers who will sell even at a huge discount as their other commitments are bigger and could take them down under if money is not raised quickly. So while the location of the property continues to dominate the pricing, in these Covid times, it is the circumstance of the seller which will influence the sales. Developers also talk about the ‘last-mile,’ which is basically unsold property held by the builder for the past 3-4 years. He might be willing to sell that at a discount now.

Irrespective all this, the underlying fact remains that majority of the people will simply not invest in a flat today as there is the uncertainty of job, salary cuts, zero bonuses; people will prefer to keep liquid cash to tide over any unforeseen circumstance.

Bottomline – demand is down and nothing at this point of time will get buyers to the realty sector. Maybe, the boom will happen now only by 2022.

Asked the realtor what he thinks the Govt should do? He said, “demand is dead and to bring back life, mere tinkering with interest rates will not suffice. The Govt needs to bring down duties and taxes it imposes on each project, which sometimes contribute 40-45% to the total project cost. It is only when these payables to the Govt comes down that we can pass on any benefit to the buyer.”

So Mr.Piyush Goyal, that’s that!