Mani Shankar (name changed), an IT professional, has been contemplating buying a house since January this year and was hoping that he would seal the deal during Diwali as it is an auspicious time to buy property. But increasing interest rates on home loans and news of a few layoffs in his office last month have made him put off his decision by a few months. “Global economic cues are scary,” he says.
Another buyer Namita Bhalla has recently bought a 3BHK in the same housing complex where she was residing earlier. She had closed the loan for her 2BHK apartment last year. “With the sale proceeds from my earlier house and the remaining amount from my savings, I did not have to take a home loan this time round,” she says.
Diwali 2022 comes after three waves of COVID-19 and unlike the last two years, the only offers that seem to be doing the rounds are stamp duty waivers and payment plans for homebuyers, besides the usual gold coins, vehicles and white goods. Overall, freebies are few and far between, which say developers, are largely on account of a certain sale momentum in the market which has continued to hold.
However, real estate experts point out that compared to last year gross discounts have reduced to just about 2-4 percent versus 10-15 percent in 2021 in terms of value. The sentiment of fear-of-missing-out (FOMO) is gradually being replaced with the fear of job insecurity on account of the global economic scenario and the emerging situation at home.
COVID-19 created an overall cloud of uncertainty which had a great impact on the sentiments of customers and real estate developers. Real estate sales and new launches dipped in 2020. However, the COVID-19 period led to demand generation, with people realising the importance of owning a home.
"Price cuts, freebies, low home loan interest rates and government initiatives like stamp duty cut supported by strong marketing communication from developers helped in demand acceleration. The period also saw greater preference towards ready-to-move-in / near-completion inventory, resulting in limited supply in this segment in 2022," explains Chaitanya Seth, Partner, Real Estate Consulting, EY India.
“Stepping into 2022, all the incentives are being eventually phased out. Conversely, there is an increase in stamp duty and home loan rates, coupled with developers pushing up prices by 5-10 percent over the last one year to compensate the increased cost impact. Despite this, demand continues to remain robust and is expected to remain stable. Newer and evolving customer segments, and the need to upgrade lifestyle and own a home will ensure tailwinds of demand. However, these parameters, coupled with changing macro-economic sentiments, and job market scenario are resulting in a shift in customer sentiment to ‘wait and watch’. This is evident through higher buying TAT (turnaround time) and a slight dip in the sales velocity,” he added.
Some builders are offering subvention schemes, interest rate waivers and stamp duty reduction, while others are offering free vehicles.
“During the COVID-19 years, unsold inventory was at an all-time high and builders were willing to offer schemes and discounts in the range of 10-15 percent. Today, these are down to sub-5 percent,” says Pankaj Kapoor, Founder and Managing Director, Liases Foras.
The Covid-19 years also saw the government pitching in with a few incentives. Today, volumes have grown, cost of construction has increased and builders are not willing to give price discounts. While unsold inventory has reduced, new inventory through new launches, especially in Mumbai, has been added.
“Discounts are few because builders know that consumers will purchase at the prevailing prices. They are simply cashing on the momentum,” he says, and warns that there may be early signs of reduction in sales too on account of high interest rates, global economic cues, and stock market correction due to which fence-sitters may try and hold their decision.
“Earlier there was a fear of missing out, today there is a sense of fear of losing one’s job. Until last year, the stock market was performing well, there were signs of a V-shaped economic recovery, but recent cues, the change in the real estate cycle seems to be having an impact,” he says.
Developers agree
“This time round there are very few freebies being offered by realtors. Generally, festival-season schemes are announced when cashflows are tight and the developer has to put in more efforts to sell units. The situation is this round is different. There is sale momentum in the market, especially for completed projects and in the resale market. Buyers are also opting for upgrades to bigger flats,” explains Manoj Gaur, President, Confederation of Real Estate Developers Association of India (CREDAI), and Managing Director, Gaursons Group.
Also Read: Will moderation in housing sales play spoilsport this festive season?
Unlike Mumbai, where there have been considerable number of new launches, Delhi-NCR has seen only a few. There is no new inventory entering the NCR market in large numbers, primarily because land parcels are not easily available.
“The demand-supply situation persists even today. There is more demand and supply is less. Having said that, several upgrade deals are happening in the resale market,” said Gaur, adding his company has recently launched a commercial project near the Hindon airport and a luxury project in Noida.
Other real estate experts point out that advertisements too are few. In Mumbai, Credai-MCHI and Naredco have recently held exhibitions where the focus has been on sales of new launches rather than massive discounts.
“This is largely because the financial stress on Mumbai developers is much lesser this time round. This year, the focus is on new launches where new inventory is hitting the market. Discounts and schemes may hit the market next year when 40 percent of construction work has taken place. Therefore, there is no desperation on the part of builders to market their products or to dole out massive schemes,” they say.
It should be noted that most builders in the MMR have launched new projects this year because of the government concessions offered to them last year by way of reduced premiums. After reducing stamp duties in the state to boost housing sales, in January 2021, the Maharashtra government cut the premium on real estate projects by half till 31 December 2021. Developers who availed of the scheme had to pay full stamp duty and registration charges on behalf of homebuyers.
Premium typically refers to the multiple charges levied by the state for launching and completing a project. Premia are collected under as many as 22 heads, including FSI, premium for staircases, lift-wells, lobbies, etc. This is significantly higher than in other top cities of the country.
The COVID-19 years witnessed a thrust in the ready-to-move-in (RTM) housing segment in the Mumbai and MMR markets. The ratio was 70 RTM : 30 under-construction. Today, this has reversed, experts say.
“The focus is back on under-construction units. Buyers are preferring this because they are getting more options at a price that fits their pocket,” they say.
Agrees Prashant Thakur, Senior Director and Head - Research, ANAROCK Group. Pre-Covid-19, most of the offers during the festive period included different subvention schemes and freebies such as free gold, modular kitchen, etc. “However, post Covid, in 2020 and 2021, we saw that more than subvention schemes, developers offered stamp duty or GST waivers and freebies as well. This year, we are seeing mostly freebies on offer by the developers. In fact, in many of the projects witnessing good sales, there are hardly any offers,” he said.
So, what’s on offer this festival season?
The typical festival-season offers comprise freebies such as internal apartment furnishings (modular kitchen, free ACs, dishwashers, etc.), additional car parking slots, gold coins and vehicles.
“Some of the festival-season plans also comprise innovative payment schemes that require minimal upfront payments (up to 20-30 percent) at the time of launch and smaller periodic payments till the time of possession,” said Ashutosh Kashyap, Director, Advisory Services, Colliers India.
In Delhi-NCR, Mahagun Group is offering a gold coin on booking of 2-3 BHK apartments at their residential project, Mywoods, Sector 16 C, Greater Noida West. Bhutani Grandthum is offering a ‘Pay 100 Get 100’ scheme for its buyers. SKA Group is offering a semi-furnished unit at only 12,999 per month for its project in Sector 143B, Noida.
Also Read: Real estate developers dole out cash discounts, freebies, bikes this festive season
In Bengaluru, Puravankara Ltd has launched the Greatest Bengaluru Home Fest campaign under which it is offering an Amazon voucher for Rs 25,000; Cult Fitness membership for one year; an iPhone 14 and a cruise trip.
Another company Karle Infra Pvt Ltd has come up with the Spin the Wheel offer wherein for every booking, customers get to ‘spin the wheel’ physically on-site and win assured gifts such as iPhones, laptops, television sets and gold coins.
Also Read: Are UHNI homebuyers shopping for farmhouses this festive season?
Shapoorji Pallonji Real Estate is offering waivers such as stamp duty benefits, and absorbing the interest rate hike.
In Mumbai, Rishabraj Group is offering Rs 1 lakh off on every booking before October 29, 2022.
Mahindra Lifespaces is offering 'all in’ pricing with flexible payment plans, home furnishings, and spot offers.
What should buyers keep in mind before going in for a festival-season deal?
Freebies, according to some experts, only work in the mid-income housing segment if they actually add value to the property or lighten the financial burden on the buyer. Conversely, offering lifestyle-oriented freebies is often effective when it comes to high-end premium homes.
Prospective homebuyers should evaluate festival-season offers and freebies on their intrinsic value, rather than their flashiness. They may not really need a gold coin, and probably already own a decent car. However, a free parking space, waived stamp duty and registration fees, and maintenance-free periods do add to the savings, and therefore to the value of the deal.
Air conditioners, modular kitchens and furnishing are also expenses buyers may incur on the property sooner or later. So getting them free now add real value, as well, say experts.
A free parking space is what you may need in any case. So would white goods. But while evaluating a deal that comes with free air conditioners, fans, lights, and microwave ovens, always check what the cost of the apartment would be without the freebies and then assess whether you would want the house with the goods or without them, as some people may already own them.
Residential sales trends during Jan-Sept 2022
The first to third quarters of 2022 recorded sales of 161,000 units, according to JLL’s Residential Market Update – Q3 2022. While 51 percent of the sales in Q3 2022 came from apartments costing up to Rs 75 lakh, it is also pertinent to note that apartments in the Rs 1.5 crore plus price tag had a considerable share of 19 percent.
“Due to cost-push inflation and robust demand, there is a rise in residential prices with the capital value showing a 3-11 percent Y-o-Y increase across all cities. New launches have also entered the market at higher prices in some cities. Hyderabad witnessed the maximum appreciation in prices -- to the tune of 11 percent on yearly basis while in Pune prices increased by around 3 percent,” said Samantak Das, Chief Economist, and Head Research & REIS, India, JLL.
The report noted that the top 7 cities witnessed new launches of 62,000 apartment units in Q3 2022, an increase of 3 percent Q-o-Q. The majority of the launches were witnessed in Hyderabad (27 percent) followed by Bengaluru (23 percent) and Mumbai which had a share of 21 percent.
The affordability synergy which was prevailing six months ago is facing some challenges. The home loan interest rate in the last six months has gone up by around 190 bps. Residential prices too, are facing upward pressure due to cost-push inflation. We believe, that this may play out to be a sentiment disruptor for home buyers, albeit on a temporary basis, the report noted.
Inputs on Mumbai festive offers by Mehul Thakkar; Benguluru offers by Souptik Datta
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