Can Property Prices Reduce After Goyal's Appeal

In a significant statement that sent ripples throught the real estate sector, Commerce Minister Piyush Goyal recently made an appeal to developers to sell their unsold inventory at any price that they are able to get as things were "not going to improve in a hurry".

Addressing a meeting organised by National Real Estate Development Council (NAREDCO) via tele-conferencing, Goyal reportedly said that the government was not going to provide a financial lifeline to enable builders to hold on to their inventory and then sell at higher prices when the market improved.

He added that those developers who sold their inventory, and are less leveraged, survived this downturn while others saddled with large loans while holding on to their high prices have suffered.

The statement doesn't seem to have gone down well with the industry stakeholders and observers. Shishir Baijal, Chairman and Managing Director, Knight Frank India, said developers were already dealing with mounting concerns over unsold inventory and liquidity and that most developers were struggling to maintain their margins and may not have too much leeway to cut prices further.

"At some level, the suggestion by the honorable minister to developers to lower prices is valid as it may help reducing inventory, though it may not be the most viable. The crux of the problem lies in dwindling demand that the sector has been experiencing for last few years. Therefore, the main solution will be in creating stable long-term demand by providing adequate boost to economic growth and stability. Any movement on ready reckoner rates, stamp duties and taxes will come as a further relief to help converting latent housing demand to sales. The real estate sector thus needs tangible measures to resurrect demand and ease the concerns for all stakeholders in the sector," he said.

Ashok Gupta, CMD, Ajnara India, said prices are already low in real estate and developers do not have a huge inventory of ready-to-move-in properties to meet the overall demand and that the focus has to be on developing and completing projects at hand. 

"To execute it with control over prices, developers need support from the government. Present government has come up with many measures to help real estate but the need is to address all issues at one go. The crisis that has now engulfed the whole country, especially calls for immediate action so that the 'Housing for All' dream can be met," he added.

Mani Rangarajan, Group COO, Housing.com, Makaan.com and PropTiger.com, added that it was obvious that builders aspire to increase their sales of available inventory whether it be ready to move or under construction. However, he added that a significant price correction looked unlikely.

"There is a price differential between ready to move or under construction projects and this is largely dependent on market dynamics. While buyers have shown a tendency to prefer ready to move in homes, there is not enough supply to meet demand. Property prices in a majority of Tier-I cities have not increased significantly over the last few years and a significant price correction looks unlikely," he explained. 

However, he said that builders were offering buyers some additional incentives to buy such as price protection schemes, flexible payment plans, and offers such as waiver of stamp duty and registration charges.  

"Given residential home sales declined 11 per cent  in FY19-20 in Tier-I cities compared to the prior year, there is a need to stimulate demand which will necessitate government intervention. These include moves such as one-time loan restructuring, control over raw material price escalations, input tax credits, and reduction in GST rates," he concluded.