A 20% price correction! Sell at ‘No Profit – No Loss’ prices! The government is not coming to the rescue, so far as real estate is concerned! So on and so forth, are statements that were heard while the country was locked down and trying it’s best to foresee a way back to revival. At the cost of being a spoilsport, let me tell you that the revival has slowly and steadily begun without the need to correct prices by as much as 20% or by having a no profit/ no loss price.
Yes, while the revival is going to be an uphill task, the lockdown and the circumstances created by the impact of COVID-19, has more than ever before, made the consumer realise the importance of owning a house they could call their own. The serious and willing end-users have already stepped out of their house and are beginning to close transactions. Having said that, there are quite a few things that are required to bring the market back to the pre-covid19 levels.
While the RBI has done its job of substantially reducing the repo rate, the same is yet to be passed on to the consumers, as the banks are yet to reduce their lending rates to the extent that the RBI has. Apart from SBI that has begun offering loans at an interest rate of sub-7%, most of the private banks that make for a large part of the lending contribution are yet to correct their lending rates. Reducing borrowing cost for the homebuyer is a pre-requisite to ensure consumers come back to buy. Secondly, the state and central governments should help bring down the transaction cost, which today works out to a whopping 10% of each transaction that happens in an under construction property. The same needs to come down drastically. A 1% GST across product classes and a temporary, partial rollback of Stamp Duty would help bring about a V shaped recovery of the sector.
The current situation is also going to give way to consolidation in the industry, while the same was happening gradually over the past several years, it is bound to now pick-up pace. Consolidation will lead to far more lesser products being brought into the market, but the one’s that would be will be by developers with very good equity and an extremely good track record. In days to follow, the market will see reduced supply and the focus would be on completing existing projects or selling off developments that are ready. New project launches will now be postponed by atleast a year.
All in all the revival of the industry to desired levels will hinge on the pragmatism of developers, developers with foresight will look at taking calls on a case-to-case basis to ensure that steep discounting is not required later. The prices are likely to remain stagnant for the next 3 quarters, but at the same time they are not likely to be corrected as is being widely expected. The demand is anticipated to reach satisfying levels by Q4 of FY21, till then the best products with the most competitive prices are bound to take the cake.