Should You Wait For Price Cuts Before Buying A Home?

Prospective home buyers have been in a waiting mode for more than two years now — a key reason behind a slump in the real estate market. Many expect real estate developers to bend to the pressure of large unsold inventory and reduce prices. However, this seems like an unlikely scenario owing to many reasons.

Fewer ready-to-move-in homes

An unsold inventory of around 700,000 homes across the country is not a myth. However, most of these are under-construction properties. These may take at least three to seven years to get completed, providing builders enough time to make deals happen.

Mumbai, for example, has an estimated unsold inventory of around 80,000 flats (most are in Thane and Navi Mumbai). Of these, only 8.5 per cent is ready-to-move-in properties, according to a report by Kotak Institutional Equities. “In Greater area, big developers have less than two per cent inventory in the ready-to-move-in projects,” said the report.

Many builders expect to sell at least 60 per cent of the inventory before they complete their under-construction projects in India. “There will be more inventory in the ready-to-move-in segment due to an increase in supply,” the report said. However, since ready-to-move-in homes are not languishing with builders, they are still not under pressure to cut prices.

Shortage of residential property

Buyers may be waiting for the right time but there is still a lot of shortage in residential property in India, believes Gupta, proprietor, RNA Builders. “People think property prices will remain stable over time. Prices have been stagnant but will go up again. This is how real estate market works. The demand has been low due to a slow economic growth. It will soon pick up,” he said.

A number of developers also say their own costs are have not gone down. This making passing on any benefits to consumers unlikely.

While there is a perception that builders are not budging on prices, as they expect huge margin on sales, they defend themselves saying acquiring land in the recent times is a tough task. Adding to this is the ever-increasing construction cost.

“There is a shortage of land in areas, where the infrastructure is ready. These are the places that people would want to live in. In this case, why would there be price cuts?” asks Gupta.

Builders are waiting for this bad phase to be over. “There has been a good turn of events with good numbers on gross domestic product growth side as well as an increase in foreign direct investment in the country. That will lead to job creation. I expect the demand to pick up in the next six months,” says Sunil Mantri, Chairman, Mantri Realty.

Further interest rate cut unlikely

Home buyers have also been expecting a cut in home loan interest rates. The serve Bank of India (RBI) has already cut interest rates thrice in one year, reducing the base rates by at least 75 basis points. However, banks have so far extended the benefit only to retail customers by a marginal 30 basis points. There may not a drastic reduction in rates in future, as banks fight of their own troubles of non-performing assets, among others.

“The interest rates in sectors have not gone down. So, there are no chances of home loan rates reduction, as these are already subsidised. The RBI has the kept the rates unchanged in the latest monetary policy, dashing hopes of a further rate reduction,” says Gupta, referring to the RBI's bi-monthly credit policy announcement on August 4.

Wait for the festivals

According to a PropTiger report on the performance of the real estate sector in the first quarter of the current financial, sales figure may either remain muted or improve slightly. “Customers are holding back their purchases in hope of price reduction and negotiating hard from developer… Though developers are not reducing prices of old inventory, most are launching subvention schemes, possession linked plans to reduce landing cost of customers,” adds the report.

In some of their new launches, the Group and Dosti have reduced prices, which has got a good response among buyers. The festival season may witness more such launches.

“There can be a price reduction of more than five per cent in these will be valid only if a buyer books a flat within the specified period,” said Gupta.

So, the festival season could be the best time for buyers looking for good offers.

(Katya Naidu has been working as a business journalist for the past nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)