Anuj Puri
Home ownership has always been and will continue to be a highly-cherished dream for most Indians, but dreams alone do not sell homes. The question of why homes are not selling does not have a single answer. It is a matter of sentiment, and sentiment reacts to a number of factors.
The slowdown in the Indian residential sector is not the result of any one factor though many would be tempted to assume that over-pricing is the main culprit. The fact is people were buying homes when most markets were heavily and obviously over-priced. Therefore, prices are not the main reason why the Indian housing market has been under strain for so long -- at least in the sense that they are unaffordable. Actually, the very fact that prices have been falling has contributed to the lack of positive sentiment.
Of course, cost of acquisition has also increased because of the imposition of GST (goods and services tax) on under-construction homes, which were once favoured for their cost effectiveness. Many developers are also willing to offer discounts or freebies to offset this burden. However, people will only buy homes when:
- They perceive that they are getting true value for money.
- They have the assurance that they are investing in an appreciating asset, not a depreciating one.
The assumption that lower prices will cause demand to kick in is half-baked. When prices decrease, buyers cannot be sure whether they have bottomed out or will sink further. If they do reduce further, they will have invested their money in an asset which is losing rather than gaining value.
The added cost of GST is correctly not perceived as a value addition -- when one sells the same property in the resale market, one cannot recover the GST cost because it is not applicable on secondary sales.
In recent years, aspiring homebuyers have also put off purchase decisions because they lack confidence. Confidence is a by-product of enough enabling factors working well in unison. It goes for a toss when aspiring buyers feel disempowered, financially insecure, intimidated, confused and angry when unscrupulous dealings come to light, and when they hear a constant dialogue about how buyers have been taken for a ride till now.
The Real Estate Regulatory Authority (RERA) is meant to infuse some badly-needed confidence. While it has managed to do so to some extent, its success in catalysing fresh housing demand has been rather patchy and inconsistent. The RERA is by no means a done deal and is still finding its feet in some parts of the country even as it faces an outcry about dilutions in other parts.
Meanwhile, there is a constant barrage of news about massive layoffs in once very secure and even lucrative sectors like IT/ITeS (information technology enabled services) and the automobile industry. Job security is at an all-time low -- and when people are not sure about their jobs, home purchase is probably the last thing on their mind.
Given all these factors, of which many are outside the power of real estate developers to influence, it is impossible to say when housing demand will really come back in force. Rather than giving a timeline, it is more appropriate to state the conditions required for full-scale demand to resurface:
- Non-volatile -- not rock-bottom -- property prices to bring back the perception that one is investing in an appreciating asset.
- Further tax breaks and incentives, including reduced GST on under-construction homes, for first-time homebuyers.
- Steady increase in job security in all industries as various cities have different economic drivers and all need to be doing well.
- Final and non-negotiable imposition of a uniform RERA regime all over the country to induce a sense of confidence and empowerment.
- A majority of the stuck projects in the market get completed so that existing buyers in these projects are released from their stress.
- The formal implementation of the Model Tenancy Act which, among other things, will help bring back investor confidence.
The last point is an important one. Real estate demand sufficient to seriously reduce the build-up of inventory across the country cannot come just from end users. Investors have to get into the fray again. The peak years of the Indian housing sector involved a lot of investor activity.
When will all these factors come together as a confluence? Hard to say. With determined and highly focused political will, it could happen in the next 18 months. Without the required impetus, the pain can get prolonged indefinitely.
Anuj Puri is Chairman, Anarock Property Consultants. Views are personal.
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