Opinion | Builders should drop prices1 min read . Updated: 15 Jul 2019, 08:53 PM IST
For a sectoral revival, old stock needs a proper clearance sale
Among offers being dangled by homebuilders to attract buyers, “buy now, pay later" schemes have grown popular lately. These are an invitation to occupy a ready-to-move-in house by paying a small down payment, with equated monthly installments to begin only after a year or two. It spells near-term relief. But are such deal sweeteners likely to lure meaningful numbers?
No, in our assessment. On the face of it, the idea is to ease the price burden on buyers. But the truth is that one-too-many such schemes have been around in the market for much too long now, and buyers generally see these as gimmicks. In most cities, real estate prices are still out of the reach of most people even among the income tax-paying minority. In fact, a recent Reserve Bank of India report notes that affordability actually worsened over the past four years, contrary to the improvement expected of an oversupplied market.
Despite their inventory pile-ups, builders appear reluctant to cut home prices. Buyers are still being asked to pay sums that compare with home prices in some of the world’s most advanced cities. That simply isn’t sustainable. As a result, sales are stuck. Token incentives have not worked and are unlikely to. The sector is facing a serious loss of consumer confidence. This is partly because of the general low sentiment in the economy, but prohibitive prices also play a role, as do various malpractices. It was hoped that newly introduced real-estate regulations would fix the sector’s problems, but the effects of a glut persist, many builders are in financial distress, and new projects covered by new rules are few and far between. For a sectoral revival, old stock needs a proper clearance sale.