Why Property Prices Are Refusing To Come Down

Those who were certain property prices will witness a sharp decline after demonetisation have been proved wrong. Data by the Reserve Bank of India (RBI) show property prices across 10 cities moved upwards in the December quarter of the financial year 2016-17 on a quarter-on-quarter (Q-o-Q) basis.

The 10 cities included in the analysis are Ahmedabad, Bengaluru, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow and Mumbai.

While the RBI Housing Price Index (HPI) recorded a sequential increase of 2.2 per cent in the third quarter of FY17, seven of the 10 cities recorded a rise in prices, show data based on numbers provided by housing registration authorities across these cities.

"Annual growth in all-India HPI increased by 60 basis points to 8.3 per cent in the December quarter. It, however, remained lower than 9.7 per cent annual growth recorded a year ago," said the RBI.

However, it was not the same story with every city ―annual growth in HPI ranged from 19.3 per cent in Uttar Pradesh capital Lucknow to -5.4 per cent in Rajasthan capital Jaipur. Data analysis by the Central bank also shows all the metro cities witnessed housing price-rise on an annual basis, except Tamil Nadu capital Chennai, which witnessed "some moderation" in the past two quarters.

There has been a "large variance" in price movement on a QoQ basis, too. While industrial town of Kanpur recorded the highest rise of 12.1 per cent in prices, at -4.7 per cent, real estate prices in Kochi witnessed a “significant contraction”.

Other reports, too, present a similar picture.

According to a report by PropTiger Data for the December quarter, property prices increased marginally in most cities, while cyber city Hyderabad saw an annual price increase of eight per cent. Cities included in the PropTiger DataLabs analysis are Ahmedabad, Bengaluru, Chennai, Gurgaon (including Bhiwadi, Dharuhera and Sohna) , Hyderabad, Kolkata, Mumbai (including Navi Mumbai and Thane) , Noida (including Greater Noida and Yamuna Expressway) , and Pune.

Here are three reasons why prices have not declined so far and may not fall in future, too, in all likelihood:

While the present is quite unflattering as far as sales are concerned, the future for real estate developers is also not going to be any easy with multiple rules and regulations being inserted into the system. Stuck between a rock and hard place, developers will find it impossible to cut prices, even if they considered doing so.

For three times in a row, the RBI left repo rate ― the rate at which the Central bank lends money to banks ― unchanged at 6.25 per cent.  Read here. This has added to the worry of India's real estate developers, whose levels of unease are seen rising with their failed attempts of selling of swelling inventory. "We needed a cut ... So much of stock is lying unoccupied," DLF Group Executive Director Rajeev Talwar told media after the RBI unveiled its first bi-monthly policy review on April 6. Lower repo rate would ensure project costs go down. This is not likely to happen anytime soon.

The who-would-blink-first game in India's real estate context seem to be over stretching. While prospective buyers are staying off the market, in a way pressuring developers to go for a price correction, real estate developers, who have their share of troubles, refuse to be stared down. As the pressure of developers to comply with upcoming rules and regulations-- the Real Estate (Regulation & Development) , Act, 2016, included — builds further, the stare-down game might continue for a much longer period than expected.

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