For nearly six months last year, Kailash Mehta, a diamond merchant, hunted for a high-end property in Mumbai. In January 2020, he settled on two ready-to-move-in residential units—one in Ashoka Towers in Parel and the other in Omkar 1973 in Worli. Both were available for around Rs 8.5 crore. He balked at the prices.
Then coronavirus struck. The same units were available for Rs 7.5 crore and Rs 6.5 crore – a discount of around 12 to 25 percent, respectively. Mehta closed the deal for the latter during the lockdown.
The outbreak of the virus has broken the back of several businesses. Consumers are in hiding. Demand is down to a trickle. Supply chains broken. Many sectors have been hit hard.
What about real estate? The sector, too, is reeling under the impact of the coronavirus pandemic but brokers have been busy, thanks to quick-witted buyers like Mehta who know a depressed market typically opens up opportunities.
In recent weeks, unsold inventory has been changing hands at a discount of up to 25 percent. Below are the highlights:
- Ready-to-move-in mid-segment units have been sold at about a 5 percent to 10 percent discount.
- Prices of some luxury housing units have reduced by 20 percent to 25 percent.
- For some ready mid-segment units, developers are offering “intelligent freebies” to buyers such as no EMI for a year.
- In the case of new projects launched online, some builders are offering a range of deferred payment plans such as 10:90 — book the unit by paying 10 percent upfront and the rest on possession.
What about housing rents?
Rents in Delhi-NCR market have been relatively stable. “We recently closed a deal for a 3 BHK unit at Rs 20,000 in Noida. There’s not much scope for reducing rent,” said a Noida-based broker.
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Another broker in Noida said rentals have been more or less subdued because people are not keen on shifting houses for fear of catching the virus. That said, several people have renegotiated with their landlords and wrangled a good deal and stayed on, according to him. “It’s a win-win for both the landlord and the tenant,” he said.
A different story is playing out in Mumbai. Rents of some high-end properties have fallen by up to 25 percent.
A lease deal was closed at Bayview Apartments in Worli during the lockdown for Rs 3.25 lakh a month. The rent was 4.5 lakh before the virus upset the market.
A unit at Usha Kiran in Altamount Road, Mumbai was sealed at Rs 4.5 lakh a month compared with Rs 5.5 lakh before the lockdown, according to brokers.
Are there more such deals?
As it happens, there is scope for further reduction in prices and rentals. Real estate developers across India are sitting on an unsold inventory worth an eye-popping Rs 3,70,000 crore, according to a recent report by JLL.
Unsold inventory increased from 442,228 units in Q4 2019 to 455,351 units in Q1 2020. Mumbai tops the list of number of unsold units with 124,059 units compared with Delhi NCR’s 121,800, said JLL.
Yet, developers are skittish about cutting prices in the hope a revival or even government aid is at hand. Railways minister Piyush Goyal on June 3 warned that no such relief is coming. He advised realtors their best bet is to sell at realistic prices. HDFC chairman Deepak Parekh and banker Uday Kotak said the same.
It remains to be seen if builders will concur. That is not to say homebuyers are playing ball.
Take the case of a villa in Mumbai's Worli. It has been in the market for months now. The owner bought it for around Rs 40 crore a few years ago and was willing to sell it for about Rs 30 crore four months ago. Today, he is willing to sell it at Rs 20 crore.
This translates to Rs 30,000 per sq ft, comparable to a high-end property in Gurgaon's Golf Course Road.
Despite the unprecedented fall, there are no takers. Potential buyers are hoping that the stress in the market would further aggravate and they would be able to wrangle further discounts.
Plenty of distress sales of properties
Distress sellers abound for units priced between Rs 80 lakh and Rs 1.5 crore.
Ritesh Mehta, senior director and head, West India, Residential, Jones Lang Lasalle India, said these buyers are already locked somewhere and want to liquidate their previous assets to raise money for the property they have bought. “They may have booked an under-construction unit assuming that they would be in a position to liquidate their previous asset at the right time but plans went awry after COVID-19. With timelines approaching to pay up, they are finding it difficult to honour their commitments and are in a hurry to sell off their old asset,” he said.
The handful of deals that have been closed, for example in Delhi, have seen a correction of around 8 to 15 percent. A ready-to-move Mahindra Luminare property by Mahindra Lifespaces in Gurgaon recently sold for Rs 3.1 crore. Pre-COVID it was available for Rs 3.3 crore, according to brokers.
A completed property in Gurgaon by Sobha Developers changed hands at a discount of around 8 percent during the lockdown. It was earlier available for Rs 3.35 crore, a broker who did not want to be named said.
In Noida, a ready-to-move-in luxury property with a well-known developer was sold for about Rs 9 crore at around 10 percent discount recently. The project is almost four years old.
For units priced around Rs 40 lakh to Rs 70 lakh in Noida both in the resale and the unsold inventory segment, a discount of 5 percent to 7 percent is inbuilt into the cost and some freebies are also being offered. “If a buyer were to make a 2 percent payment and close the deal, a receipt of 4 percent is handed over to him in some cases,” says Pankaj Bharadwaj from Pariwar Estates, Noida.
The sharpest drop in rentals has happened in Mumbai.
Brokers in India’s financial capital and home to the costliest real estate in the country told Moneycontrol that in some cases, rentals have declined by up to 25 percent, especially those that have come up for renewal. Landlords in such cases have preferred staying put with their old tenants. It is uncertain if a new tenant is round the corner.
In Bengaluru, tenants are upgrading. Tech workers residing in a 2-BHK close to their workplace and paying a rent of around Rs 35,000 have moved into a 3-BHK for the same amount a few kilometres away after being informed that they would have to work from home, according to brokers.
A similar set of canny customers is driving sales as well. Take a look at some of the deals that were closed.
Madhurya Malik, a broker, told Moneycontrol that several ready-to-move-in bucket deals, largely comprising of top floors retained by a developer in Noida, have been sold during the lockdown. A 1,800 sq ft apartment along with a 1,300 sq ft terrace was offered at an all-inclusive price of Rs 75 lakh — a 15 to 20 percent discount — by the developer. The price of the unit in the resale market is around Rs 90 lakh.
In Bengaluru, a 3BHK worth Rs 90 lakh was finally closed for Rs 80 lakh and another property worth Rs 1 crore was closed at Rs 90 lakh during the lockdown, an almost 10 percent discount. The deals were being negotiated since last December.
According to brokers, the price of a property remains a function of the location, but now the circumstances under which a property is being sold also influence sales.
A unit in South Delhi’s tony Shantiniketan closed recently at around Rs 10 crore. Sure, location played a role, but the timing was a factor.
Likewise, a unit in New Friends Colony, whose value was around Rs 52 crore last year, has now been sold for Rs 28 crore. Some units in Gurgaon’s Dwarka Expressway are finding buyers at Rs 5,500 a sq ft in the resale market. Those prices hark back to 2011.
Location can come to bear on prices. A four-bedroom duplex in Samudra Mahal was sold for Rs 40 crore in 2014 and two floors were sold for Rs 41.5 crore last year. "This is a prestigious address in town. Prices for these units have not been impacted by COVID because the stock is few and far between," said Mehta.Futuristic locations fetch more discounts
Discounts are triggered for properties that are stressed or where the location is not a USP. In some cases, it is the ready inventory that has been held by the developer for almost three to four years that is witnessing some serious discounts. This is often referred to as last-mile inventory.
“The biggest competition to developers often is from their existing investors for projects that are in advanced stages of completion. Investors are slashing expectations candidly while developers are doing it insidiously,” said a property consultant who did not want to be named.
So who is buying?
Corporate bosses. They are the ones who are buying properties in the Rs 10 crore to Rs 20 crore range. But the raft of salary cuts, zero bonuses and job cuts is likely to smother demand for such houses, say property consultants.
The virus has spared none. The typical real estate customers —business promoters, exporters, hoteliers, diamond merchants and jewellers — are all facing liquidity challenges.
“These people may face huge cash flow issues,” said Amit Goyal, chief executive India, Sotheby’s International Realty.
What that means is demand will not pick up in a hurry.
Having said that, consultancies dealing in high-end properties are now planning to focus on users who are scouting for attractive deals. Goyal said there may be a shift in the target segment. “These could now include professionals such as top doctors, lawyers, health professionals, pharmaceutical company owners – who may be looking for a high-end property.”
Brokers in Noida and Gurgaon said some properties during the lockdown were picked up by lawyers.
Sales are going virtual
Both property brokers and real estate companies have claimed closing primary (new launches) online deals worth crores during the lockdown.
That is because of the manner in which deals were structured. These are essentially bookings based on token amounts, typically of around Rs 1 lakh deposited by buyers.
Builders have offered 10:90 schemes wherein the buyer gets to pay 10 percent upfront and 90 percent at the time of possession. This has done well of late, said Ankit Kansal, MD and CEO, 360 Realtors.
Some builders have also promised a price guarantee option to boost sales. This could ensure that the buyer not only gets back his money but also an amount equivalent to what he would have earned had he parked his money in a fixed deposit.
“Once the lockdown opens, the buyer can pay the remaining amount within 15 days or take a refund,” says Anckur Srivasttava, a property consultant.
He advises buyers to consider only ready-to-move-in units where the underlying risk on completion is minimal and reliance on the developer, too, is minimum. Plots, too, are another alternative, he said.