No crash after stamp duty hike, but a slowdown as Mumbai real estate finds its CASA

In the Mumbai housing market – a different CASA has seen traction. It is a) Credible developer b) Aggressive pricing c) Small apartments d) Amenities

Credible developer: It doesn’t matter if a builder is ‘branded’ or ‘listed.’ As I have argued before there are branded developers who have not yet delivered a single project and there are listed players who have done a shoddy job in projects. The key element is whether the developer is credible or not. Many credible developers who are focused and have consistently delivered in their micro-market have done well despite few people from outside having even heard of them.

Aggressive pricing: If there is one major change within the industry in the last year – it is that waiting for an elevated price (or a government bailout) is futile. In response, an overwhelming majority of players cut their prices and tried to attract demand. Some have cut their prices to an extent that has frankly surprised even someone like me. It is tough to state the average price fall – but I would reckon that the cost of ownership for most consumers reduced by 15% with developers contributing a dominant chunk. Customers have responded by opening their cheque books.

Small apartments: Apartment sizes on an average have shrunk by more than 20% in the last decade as developers tried to lower their ticket size to address a larger audience of buyers. Not everyone has succeeded and this phenomenon is beginning to unravel, but the ones who have designed their small apartments intelligently have gained. The ones who have not done optimal utilisation of the space have seen difficulty in sales.

Amenities: Townships with a range of amenities have been the preferred flavour in recent years. That trend has only accelerated after COVID-19 emphasised the importance of having amenities within your project. The projects that have seen traction are the ones that are providing or planning to provide a holistic living experience of living. This may include amenities ranging from a swimming pool to an office center.
The key question then is this: will things fall sharply for the industry after the removal of the stamp duty waiver? In my view – things will not crash.

The stamp duty waiver in the last three months was a 2% benefit to the customer. While not small in value to a buyer, it will be wrong to interpret that a 2% price difference separates a buoyant and a sluggish housing market.

Yet there will be a slowdown as a lot of pent-up and incremental demand has already been absorbed in this phase as all stakeholders operated cohesively to attract home buyers. The players or projects that didn’t thrive in this environment have almost no future in the business.

But the ones who operate in the CASA framework will not see a sharp cut in volumes although the sales cycle will be longer as buyers take more time in their decision-making. Developers will need to further incentivise buyers with schemes to offset the stamp duty impact and many are likely to do that. Hence, volumes will not suffer radically although in value terms the impact will be greater given the configurations and prices in play.

Amid the pandemic when the sentiment was at its lowest, everyone chipped in to create a formula that caught the imagination of the customer. It meant thinking more about customer needs and affordability. And lesser about an imaginary profit margin or tax collections.

The government may have gotten carried away with this fleeting phase of success. For the developer, however, that means there is a long road ahead. But one that can be crossed.