Do the post-Navratri sales indicate a revival in Indian real estate?

[ecis2016.org] Builders expect normalcy to return on the back of a revival in consumer sentiment during the festive season 2020. We examine the reasons for this and whether it can lead to a sustained revival

Sales in some of the most active property markets in the country showed an upward movement during the nine-day navratri festivities, a development that has given builders a reason to believe that the sector may bounce back to business-as-usual by the end of 2020. Low interest rates, reductions in stamp duty by some states and lucrative discount offers, are believed to be the key reasons behind the revival in consumer sentiments in these markets, in spite of the impact of the Coronavirus pandemic on real estate and the economy.

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According to Abhinav Joshi, head of research at CBRE India, the festive season that starts from October, is when people are keen to explore new investments opportunities and developers too offer lucrative schemes. Combined together, these factors are helping real estate inch closer to normalcy.

However, the partial lockdown caused by the pandemic did impact housing sales during the festivals of Gudi Padwa, Akshaya Tritiya, Navratri and Ugadi. While sales did improve during the previous quarter, it is not at the same level as the past festive seasons. Most of the developers that ecis2016.org News tried to approach for this article, refused to provide their comments on overall sales numbers.

Festive season 2020: What has led to the spike in home sales?

Commenting on home sales in India’s most expensive property market, Mumbai, Ram Naik, executive director, The Guardians Real Estate Advisory, says, “The Maharashtra government’s decision to lower stamp duty rates at a crucial time, led to a quicker-than-expected revival of demand in the realty sector, especially in Mumbai and Pune. The nine days of Navratri have witnessed almost the same level of exuberance from customers as has been the case over the past few months.”

Recall here that the state government, on August 26, 2020, decided to temporarily reduce the stamp duty on property purchase in two slabs by up to 3%. The move is likely to help the residential markets in Mumbai and Pune in a big way, considering that they contribute the highest to the national inventory stock, according to ecis2016.org data.

Stamp duty in Maharashtra

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Note: Stamp duty is given as percentage of the property value

Effective April 1, 2020, the Karnataka government had also lowered the stamp duty on purchase of affordable homes. The stamp duty on properties worth Rs 21 lakhs to Rs 35 lakhs was reduced to 3% from the previous 5%. Similarly, properties costing less than Rs 20 lakhs will now attract 2% stamp duty. The move also resulted in providing an impetus to the residential realty market in Bengaluru, counted among one of the fastest-moving realty markets in the world. According to JC Sharma, VC and MD of Bangalore-headquartered Sobha Ltd, low interest rates, along with stamp duty reduction in some states, have been instrumental in reviving sales during the nine-day festivities.

Note here that almost all banks in India including SBI, HDFC, ICICI Bank, Union Bank, etc., have now brought the lending rates on housing loans to sub-7% annual interest, a level at which rates were 15 years back. Banks started lowering their rates after the banking regulator, RBI, cut the repo rate at which it lends to scheduled financial institutions in India, to 4%. Since home loans are now linked directly with the repo rate, it is incumbent upon the lenders to reduce rates accordingly. They typically price their lending rates higher by two to three percentage points over and above the repo rate, which is known as the ‘spread’ in banking parlance.

Home loan interest rates at major Indian banks

Data as on November 5, 2020

Source: Banks’ official websites

Can festive season discounts alone boost sales?

“Developers are offering enticing deals and discounts to the consumers who are likely to invest in a property during this auspicious time,” adds Sharma.

[ecis2016.org] Will 2020’s festive season bring cheer to India’s COVID-19-hit housing market?

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The NCR market, which has been the worst-affected housing market, because of a multi-year slowdown, also benefited from the festive spirit. While stating that there has been an almost 15% increase in sales so far, Yash Miglani, MD of Ghaziabad-based Migsun Group, maintains that the coming months will be better.

Miglani, however, feels that most of this improvement happened on the back of an acceleration in support policies by the government, because of which buyers’ trust is back in realty, a sector that has suffered owing to perception issues in the past one decade.

“In addition to the festival season, people’s trust in realty has improved after the slew of measures taken by the government, the decrease in EMIs (because of the cut in lending rates) and realty becoming a must have asset (in the backdrop of the Coronavirus-induced fear),” says Miglani.

Naik concurs, adding that “We believe, a majority of the transactions currently done are by so-called fence-sitters. who always wanted to buy but were looking for a good bargain”. He adds that stamp duty reduction and low borrowing costs are resulting in quick closure of deals, with developers willing to negotiate in cases where payments are being made immediately.

Director of Ansal Housing, Kushagr Ansal, however, views it differently. According to Ansal, who is also the president of industry body CREDAI’s Haryana chapter, this year’s festive season has been more special, since it came right after a ‘tumultuous’ time. “The fear and assumption was that people would be wary of buying but the results are turning out to be the opposite. People are coming out in large numbers and sales expectations during Diwali are high,” says Ansal.

When will the real estate market revive after COVID-19?

Developers expect real estate sales to spike further during the four-day festivities during Diwali, while they also hope that this momentum would continue till the end of the year. “While the transaction activity will increase in all key cities, Bengaluru, Hyderabad, Mumbai and the NCR (select parts of Gurgaon and Noida) are expected to perform relatively better than other markets, especially in the mid-income (Rs 45 lakhs to Rs 1 crore) and budget (less than Rs 45 lakhs) segments,” Joshi explains.

Sharma has a final word of advice for those looking to book a property during the festive season. “A home buyer must be careful and choose a credible developer with a strong track record of on-time delivery of quality products with transparency. Additionally, it is important to research about the price and product quality, without getting carried away by unrealistic discounts,” he concludes.

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Category: Lifestyle