Have property prices hit rock bottom after COVID-19?

[ecis2016.org] While builders continue to talk about increased housing affordability, primarily due to a fall in interest rates and stamp duties, there seems to be little change in the basic per sq ft price of properties

Will property prices fall in India, because of the ongoing Coronavirus crisis and its negative impact on the economy in general and the realty sector in particular? Those who participate in the debate over property price correction, often do not really play a direct role in determining value, their role as pressure groups notwithstanding. Thus, it becomes extremely difficult to find a clear answer. However, we should try to the extent possible to arrive at a logical conclusion.

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Expectations of property price correction after COVID-19

Sector experts minced no words while projecting a freefall in prices. Recently, a Reuters poll forecast that property values in key Indian markets may fall by up to 10% during 2020 ‘in the worst-case scenario’. Interestingly, while experts had predicted reduction in value, with some terming this phenomenon as a crash situation, data present a contrary picture.

[ecis2016.org] Coronavirus impact on property prices

ecis2016.org data show that property values in India’s eight prime residential markets remained largely the same, barring some markets, where prices, in fact, moved upwards during July-September 2020.

Weighted average property prices in top eight residential markets as on September 30, 2020

Source: Real Insight Q3 2020

Government data itself presents a similar scenario. The RBI’s quarterly Housing Price Index (HPI) showed growth of 1.2% on a sequential basis during April-June 2020. The index showed that housing prices in Bengaluru, Kochi, Ahmedabad and Lucknow increased during the quarter. On an annual basis too, the all-India HPI increased by 2.8% in the April-June quarter, as compared to 3.4% a year ago. The index also showed that the annual growth in city-wise HPI varied from an increase of 16.1% in Bengaluru to a contraction of 6.7% in Delhi.

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The RBI data are based on transaction-level data received from housing registration authorities in 10 major cities, including, Ahmedabad, Bengaluru, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow and Mumbai.

Has real estate become affordable after the Coronavirus pandemic?

While data show that housing values increased despite the Coronavirus crisis, builders invariably speak of increased affordability to encourage buyers to invest. These claims are not ill-founded. This could be those rare times when the fringe expenses involved with property purchases have gone down dramatically, especially in some cities, as the government tries to save the economy in the aftermath of the pandemic. Real estate is the largest employment-generating sector in India after agriculture and employs a large part of the country’s unskilled workforce. Thus, reviving activity in this sector is very important.

So, it is pertinent to note here that the banking regulator in India has brought the repo rate, at which it lends to commercial banks to 4%, its lowest level in the past 15 years, amid the economy slipping into its deepest recession on record, due to the pandemic. Consequently, buyers currently can get home loans at sub-7% annual interest. This is in contrast with the 10%-11% interest that buyers had to pay a couple of years ago, when no imminent danger was looming over the economy.

States like Maharashtra which is home to some of the priciest housing markets in the country, have also come forward and temporarily reduced stamp duty rates, to boost consumer sentiments.

Developers too are offering home buyers price benefits through GST waivers and easy payment options. They are, however, not willing to budge when it comes to reducing prices per sq ft. To put it succinctly, house prices might have come down but that has little to do with reductions offered by the builders. Developers that cite housing affordability to attract buyers, invariably speak of the low interest rate regime and freshly reduced stamp duty charges while simply skipping the part about base price reduction.

They also have a message for the buyers who have been waiting for a price crash to leave the fence. “Committing to a high-end purchase like real estate, is usually a once-in-a-lifetime decision for a majority of buyers. Therefore, the expectation of a price crash as an after-effect of the pandemic is genuine. However, we as developers also have certain unavoidable overhead charges and permission costs, which cannot be withered away just like that,” says Kushagr Ansal, director, Ansal Housing and president, CREDAI-Haryana.

Amid the overwhelming talks of price fall from those who would benefit from a reduction and the underwhelming response from those who would take a hit if prices were to fall, emerges another point as indicated by industry insiders. “On ground, developers are willing to not only offer discounts but also lower the per sq ft price, especially the mid and small scale builders, who are currently sitting on huge unsold stock and have an extremely heavy debt burden,” says a real estate analyst, requesting anonymity.

According to him, builders in the highly stressed markets of the NCR and MMR are quite willing to negotiate prices with the buyer, as sources of funding have nearly dried up for the residential segment.

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“Unlike commercial real estate, builders in this segment largely depended on advance payments from buyers, to build projects for which they had to pay no interest. At a time when they are really pressed for funds amid excruciatingly difficult economic conditions, not lowering prices, even if they do not like to accept it openly, is not much of an option,” says the source.

The Mumbai and NCR markets have seen sharpest fall in rates. While the former is the country’s priciest real estate market, the latter has also seen sharp over-valuation in the past, subsequently resulting in a slowdown.

According to local brokers in Mumbai with whom ecis2016.org News spoke to, property rates in Mumbai in some of the prominent localities have undergone a 20%-25% correction in the past one year, as sellers are desperate to find a buyer. In Delhi’s resale market too, property prices have undergone changes in the range of 10%-15%, they say.

“As the world struggles to find a cure for the Coronavirus for nearly 10 months now, sellers are coming to terms with the ground reality. They would typically continue to stay put and wait for prices to move up before making a deal. Acutely conscious that rates are far from seeing any upward movement in the near-to-midterm, they are willing to negotiate prices now. It is also wrong to say this approach is visible only in the resale market. When compared to developers, they are in a less precarious position,” says Sanjor Kumar, a Delhi-based real estate broker.

Is the real estate market showing signs of recovery post-COVID-19?

While uncertain about the extent of fall in prices, the industry is confident of an impending recovery, especially with the festive season coming up. “Signs of revival are already being witnessed, with sales in the mid-market segment picking up across all metro cities. The festive season – starting from October – is the time when people are keen to explore new investments opportunities and developers too offer attractive schemes for buyers. We can expect a substantial revival of the realty sector in the coming few quarters. Pent-up demand for the last six months, reduction in interest rates of home loans, availability of completed units and the work-from-home culture, are all expected to contribute to a strong recovery in the last quarter of 2020 and during initial quarters of 2021,” says Anshuman Magazine, chairman and CEO, CBRE India, South-East Asia, Middle East and Africa.

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

“Sales performance during the festive quarter from October to December have always been 30% higher, in comparison to sales during non-festive quarters. We are expecting the same this year, as conversions are likely to take place from the pent-up demand. Festive offers will also play a critical role in maintaining the sales momentum,” says Prashin Jhobalia, vice-president, marketing strategy, House of Hiranandani.

(The writer working on this article approached several leading real estate developers in the country for the story and was told they would not like to comment on the subject.)

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