Home / Money / Calculators /  Property prices drop by 7% in 9 cities in January-March: report

There’s good news for homebuyers. Property prices witnessed a significant drop in the first quarter of the calendar year 2018 in nine cities: Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru, Thane and Chennai. According to a report by PropEquity, a Gurgaon-based real estate data, research and analytics firm, “Weighted average prices in the quarter fell 7% from Rs6,762 per sq. ft to Rs6,260 per sq. ft, suggesting aggressive pricing (price reduction) by the developers to ignite homebuyers demand."

The decline in prices, which were stagnant for over a year, has come as a welcome change for homebuyers. Not surprisingly, demand increased, and real estate inventory saw a marginal decline between the last quarter of calendar 2017 and the first quarter of calendar 2018 (see graph).

While many developers have reduced their base prices, a few have waived off additional charges. “There is a visible price correction of up to 3-5% in base price across the country. In addition, developers are offering club membership, car parking, modular kitchen and other amenities at no additional cost. So, the net price correction is about 10-15%," said Samantak Das, chief economist and national director-research, Knight Frank India, a real estate consultancy firm.

Piling inventory and low sales are the main reasons behind falling property prices.

Though the report shows there’s been a nominal decline of 2% in the overall inventory of unsold houses during the first quarter, it is still very high. According to the report, the current unsold inventory of apartments in the nine cities is about 595,000 units. At the present sales volume, it may take years before the current level of inventory is cleared.

At the same time, decrease in prices during the quarter has led to a slight increase in the number of units sold. According to the report, 40,694 units were sold in the first quarter of 2018 compared to 37,555 units sold in the previous quarter, which means a rise of about 8%.

A major reason behind low sales was demand-supply mismatch. Out of the total unsold inventory, a lot of units are in the high-end and luxury housing segment, which is not in line with the demand from homebuyers. It seems developers have now realised that.

During the quarter, though the number of project launches increased, most of these were in the mid or affordable segments, which are in demand. Developers are trying to cash in on the advantage of Pradhan Mantri Awas Yojana and are launching projects that qualify for subsidies under the scheme.

Most homebuyers are also looking for projects that are ready to move-in or are nearing completion. Though the Real Estate (Regulation and Development) Act, 2016 has been implemented, it is yet to make an impact on buyers’ confidence, and they are still skeptical about the timely completion of under-construction projects.

The lack of demand in this period—when prices remained stagnant—perhaps held a lesson for developers. Even as they kept insisting that there was no room for further reduction as they had reached the bottom and were touching the cost price, demand remained low.

The recent price decline yet again validates the fact that the price of a product, including that of a real estate unit, depends on market dynamics of demand and supply and does not factor in the cost.

In fact, if homebuyers are reluctant to buy even at this price point, developers might have to reduce prices further to clear inventory.

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