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Business News/ Opinion / Online-views/  Unsold housing may trigger price cuts
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Unsold housing may trigger price cuts

Unsold housing may trigger price cuts

Graphic by Ahmed Raza Khan; illustrations by Jayachandran/MintPremium

Graphic by Ahmed Raza Khan; illustrations by Jayachandran/Mint
Graphic by Ahmed Raza Khan; illustrations by Jayachandran/Mint

Analysts say that corrected prices may be offered in the form of certain easy payment schemes and discounts, and offers may vary from region to region. “If the current economic uncertainty across the globe and in the domestic market remains the way it is, prices are bound to correct. But the correction will come in the form of discounts or through some schemes in the new launches," says Gaurav Pandey, head-research and consulting, PropEquity Analytics.

Early signs of correction

The PropEquity report adds that there could be a “stage 1" price correction in the range of 5-20%, especially in the newly developing areas of NCR and MMR. Explaining the expected correction, Samantak Das, national head–research, Knight Frank India, an international property consultant firm, says, “Rates are stagnant at present in most markets. Price correction will depend on how long the developers can hold. However, there is pressure on developers due to high debt and increased supply in certain markets. Thus, they may not bring down the marked price or the quoted price but instead offer freebies, discounts and some easy payment schemes to generate sales." This may give you a chance to bargain hard on the quoted rates.

So homebuyers may soon encounter terms such as “easy EMIs", “early discounts", “limited offers" and “all inclusive price". Also freebies such as free modular kitchen and free car parking may be offered. Homebuyers may see offers such as 20-80 schemes, wherein 20% of the cost has to be paid upfront and 80% upon possession or after two years, whichever is earlier. Developers give this kind of offers primarily during early stages of any project launch. “This ensures a healthy absorption rate throughout the year for developers," says Limaye.

Resale market may follow trend in primary market

The secondary market (resale market) may simply follow trend in the primary market (new launch). “Generally, prices of properties up for resale are benchmarked to new launches. If prices of new launches will fall or offer discounts, resale market will witness a gradual drop in absorption leading to an increase in inventory," says Pandey. This may lead to softening of prices in the secondary market.

The market reaction

While prices in metros may fall, tier II cities such as Indore and Jaipur may continue to witness growth in prices. In Mumbai, a surge in supply in Navi Mumbai along with a slow recovery in sales in most parts of Greater Mumbai is expected to lead to a situation where the residential market might continue to remain buyer-friendly in the near term. In Delhi-NCR, prices could see a longer stagnancy phase as oversupply has resulted in projects recording low sales volumes, thus limiting capital value growth. Property prices in other important markets such as Bangalore and Chennai may witness stagnancy due to an oversupply situation, says Limaye.

What it means for you

If you are a prospective buyer, enter the market only when you get a good bargain with discounts. Also make sure the developer has all the necessary approvals in place. “Buyers should invest in projects which are at an advanced stage of construction. Real estate investments should always be done for a long-term horizon," says Pandey. However, if you are already invested in a project, do not exit unless the developer stops construction at the site.

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Published: 26 Jun 2012, 12:35 AM IST
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