One reason could be that the supply has shot ahead of the demand. While real estate developers built houses in the hope that the demand for housing is far from satiated, given the fact that the migration of people to towns and cities will take decades to reach the levels of mature economies (around 200,000 people come too Delhi alone every year, which puts a huge stress on its housing infrastructure), buyers have turned cautious, thanks to the well-entrenched economic slowdown. Real estate developers in most cities are sitting on huge piles of inventories, real estate consultancy Jones Lang Lasalle has said. Thus, Mumbai has inventory of 48 months, Bangalore of 25 months and Delhi (the National Capital Region) of 23 months. This is way beyond the comfort levels of 14 to 15 months.
Most developers are yet to drop prices to clear their inventories. But, their brokers are offering bigger-than-ever discounts. Developers usually give a margin of up to 11 per cent to their brokers. In good times, these brokers passed on 3-4 per cent out of that to the buyers. These days, it is not uncommon for buyers to bargain for a discount of up to 8 per cent. Also, as many as 400 projects across the country, including cities like Delhi, Mumbai, Bangalore, Kolkata and Chennai, are offering various schemes and offers to tap the demand. The offers range from free registration and stamp duty to a free gold coin and a Singapore trip, according to information available on property website Magicbricks. A few months ago, there were only about 275 projects across India with various deals and offers on the same portal. The number is likely to go up to 800 if small developers and other unannounced schemes and offers are included. Says Magicbricks Business Head Sudhir Pai: "There is a fair amount of supply in the market, and that's why developers are coming out with various schemes to push transactions."
Most experts feel these offers make it the right time to invest. "The size of the discount is a straight function of how the market is performing," says Anshuman Magazine, chairman and managing director, CBRE South Asia. "It is a good time for people (end users) to explore the market and take informed decisions with a three- to five-year horizon." Adds Harinder Singh, managing director of consultancy firm Realistic Realtors: "The buyers have been in wait-and-watch mode and have delayed their purchase decisions due to various factors. This is the right time for investors to buy property as they can negotiate for the best price in the slow-moving market." Shveta Jain, executive director (residential services), Cushman & Wakefield, says: "There are no price cuts, only price corrections and that too in a few micro-markets. Pent-up demand from first-time home buyers is still there. The whole market is realigning from being an investor-driven one to a user-driven one." Briton Banerjee, managing director, Tata Housing, adds: "We don't see any price corrections happening in the industry."
The other factor that might slow the market somewhat is the recent crackdown by the Reserve Bank of India (RBI) on the 20-80 scheme, under which buyers were required to pay only 20 per cent upfront, and the equated monthly installments, or EMIs, would start only after two years. During this period, the builder would pay the EMIs to the bank or the housing finance company. Most buyers bought houses in the hope that they would sell before two years. This had given a huge boost to the demand. Now that RBI has ended the scheme, a lot of investors are likely to stay away. This could have an impact on prices in medium to long term. "The ability of the market to cling to current prices is under severe stress," says Ashutosh Limaye, head of research and real estate intelligence service, Jones Lang Lasalle.