The Indian real estate industry is likely to witness a significant price correction for the first time in a decade as coronavirus induced lockdown stalled business activity across the country. COVID-19 pandemic has severely impacted the Indian economy as well as the real estate sector, which was already grappling with issues like a liquidity crisis, high unsold inventory, and subdued demand.
Like every crisis, coronavirus pandemic too has come up with an opportunity for home buyers as well as cash-starved real estate developers with unsold inventory may be forced to sell at discounted prices. The real estate developers have huge pressure to generate cash flows to survive amidst this unprecedented crisis. The real estate property prices across markets of India being held steady despite lending and the shadow banking fiasco.
According to a report, amongst nine major real estate markets across India have around unsold residential units worth USD 80 billion. This could take about 4-5 years to sell unsold residential inventory across India. The central government & RBI also came up with multiple monetary and structural policies to distress the real estate industry like last-mile funding, repo rate reduction, infusion of liquidity, and others.
Several real estate experts and consulting firms are expecting a 10-20 percent correction in the prices of luxury properties (INR 2.5 crore & above) depending on the location, city, and demand-supply situation. In the mid-segment, property price between INR 1 crore to INR 1.5 crore might witness slight correction as developers are offering freebies instead of direct discounts. An affordable segment may register a moderate price reduction of 5 percent.
A report by HDFC Securities had mentioned that big non-banking finance companies (NBFCs) expect a further 20-25 percent price correction in unsold residential inventory and 25-30 percent plunge in volume for the financial year 2020-21 coupled with a fiscal incentive like stamp duty waivers. The report further elaborates that, this will revive demand and the real estate market will consolidate among a few large organized players with a strong balance sheet and access to bank funding. The joint venture development model of a residential project will surge and the land buying process will be delayed further. The developers will focus more on completion of stalled/incomplete residential unsold projects and new launches will be put on hold for sometimes.
Developers are particularly focussed on mid-segment property buyers, where no major price correction is expected, instead, they are offering freebies to boost demand and stimulate this segment to buy. Builders are going one step ahead to lure mid-segment buyers by offering in the range of deferred payment plans to free corona insurance that may address buyers’ fear of a job loss. Certain real estate developers are promising a price guarantee option to boost sales. Under this option, if a property is worth INR 1.2 crore and under any circumstance, prices come down in a few months or the buyer lost his job, developers as per this scheme will buy back the property from the buyer and also offer 6 percent interest on the amount.
These schemes are addressing fear of a job loss, erosion of property value, and contracting to COVID-19 disease. Deferred payment scheme like 10:90 payment option from Godrej Properties which means the home buyer must pay an upfront amount of 10 percent and 90 percent at the time of possession are offered by certain developers.
The steep price correction coupled with several external economic forces has changed the market situation from a sellers’ market to buyers’ market. Now it is a complete buyers’ market. So, if someone wants to buy a real estate property, they can go for it.