India Can Take Lessons From These Cities In Handling Its Unsold Inventory
What could be the quickest way to address a property slump? When properties in Canada's Vancouver went out of the reach of most residents, economists suggested tweaking the surcharge. If a property costs $1 million, the surcharge is usually $15,000. However, if the homeowner had paid income taxes worth $15,000 that year, the surcharge would be zero. If the taxes paid came up to $10,000 the property surcharge would be $5,000. What's more, the disabled, the war veterans and the retired would be exempt.
On the other hand, in another Canadian city, the market for condominiums is making a comeback. In Toronto, the unsold inventory level was down to the lowest at 6.8 months as of August, 2016. Two factors account for this. One, prices moved up very slowly and second, the supply was restricted.
Also read: Vancouver, London Among Cities That Face A Bubble Risk
In China's Guangzhou, commercial properties are facing a similar situation. The rise of e-commerce companies has led to almost inactive trading markets. When its residential market faced a slump, the authorities had done away with down payment loans or buying homes through crowd funding. To address the commercial front, developers are being encouraged to change their planned use of commercial sites. Experts who could help developers make the best decision such as altering their commercial units into apartments, etc, were also being considered.
India is facing a similar problem, and these examples could show it the way forward.
What is wrong?
Prior to 2008, Indian property markets saw a bull run. Most developers, structured and unstructured, continued building more. Over the years, the menace of oversupply became so rampant that developers today are sitting over 40-50 months of unsold inventory. Financial capital Mumbai alone is sitting on an unsold stock of 1.7 lakh units, worth Rs 1.80 lakh crore. Of this, luxury units worth Rs 23,000 crore have also not been able to find takers.
What could be the possible solutions?
Build what is needed
Benedict Lim, Managing Director for EY Corporate Finance Pte Ltd, says that with a few thoughtful tactics, developers in Singapore continue to do well. This could be replicated in the Indian context, too.
“With increasing land prices, developers have forced a specification standard of smaller living spaces to ensure an equilibrium price for healthy take-up. So, have developers given consumers less for more or really more for less? It is time to do a rethink,” he says.
Control new launches, consciously
The later part of 2016 saw some revival, although not sizeable. With the Real Estate (Regulation & Development) Act, 2016, in various stages of implementation, developers took to concentrating on existing projects than undertake new ones. This did sober the pace of any added construction.
Those small incentives
Offering freebies is not the only way; cost reduction in real terms could also work wonders. Buyers would be more willing to invest if, say, there is a service desk in their housing society to collect their couriers in their absence. Working women will turn eager buyers if a housing society offered crèches. “Busy working parents will always be grateful for things that make life easier,” says Lim.
And then, tax incentives are always encouraging.
Ownership with least compromises
Jayant Srivastava is looking out for an affordable house. His budget is Rs 45 lakh and in Mumbai his options for investment are limited. He has to move to the peripheries if he wishes to own a house. Srivastava feels that the amenities provided by the developer and the quality of construction are substandard, but that's the only place he can afford to put his money in. Lim answers a very pertinent issue in this regard. “Sense of place and pride of ownership will continue to drive buying imagination.”
Demand for housing cannot come to a standstill ever. Hence, projects that keep aspirations alive for every segment of buyers will always see takers.
Also read: #Budget2017: Affordable Housing To Get Infrastructure Status