Hit hard by demonetisation, real estate builders are now coming up with special schemes to lure buyers and encouraging online payments. Price guarantees are also being given for price corrections in the near future.
Homebuyers are being assured of adjustment of compensation if prices fall further. This has led to a significant rise in interest on ready-to-move-in properties and projects nearing completion, says Brotin Banerjee, MD & CEO Tata Housing.
“We have also encouraged the use of the most convenient mechanisms for transactions through our online portal which allows customers to make payments online ensuring transparency and ease for both,” he says.
In Delhi NCR too, some developers are planning to provide price guarantees which will be included as a clause in the builder-buyer agreement. If property prices were to correct, the balance will either be returned to the buyers or adjusted in their installments. Realty experts, however, warn buyers about this measure, asking “How will you measure correction? What is the criteria and how can the same value be true for all cities and all asset classes?,” they ask.
Developers who have introduced the book now, pay after three months include Delhi Infratech, which has allowed buyers hit by demonetisation to book apartments in its luxury project DeNest on the Gurgaon-Faridabad Expressway and pay later.
It has also been reported that some builders, especially those with huge unsold inventory, have been accepting old currency notes from buyers to repay debts. Many local builders have managed to settle their old debts in this way. Similarly, broking firms are reportedly bookin properties with old currency to pay off the money they owe as commissions to sub brokers, say sources.
Buyers are being encouraged to transfer the booking amount for properties online. PayUmoney has partnered with Ansal Builders for payment of booking and utility costs. Eight to 10 builders are live on our platform, says Pradeep Shekhawat, head-SMB Business, PayU India.
What may probably work better at this juncture is for developers to offer rebate for timely payment of EMIs to customers. After the housing bubble crisis in 2007-2009, many developers offered 5%-10% discounts on the overall cost of the product and adjusted the discount with the last payment. “That is a better way to address the current market situation and will help encourage sales,” says Shveta Jain of Cushman & Wakefield.
Having said that, the uncertainty in the market is only temporary. “Right now it is more a function of uncertainty in the market and buyers adopting a wait and watch approach. The situation is expected to ease by March next year,” she says.
Have deals materialised post demonetisation? Most all-cheque transactions that were in the pipeline before November 8 have more or less concluded. Majority of cash transactions, however, have failed to materialise due to uncertainty in the market.
Primary markets are most of the time driven by all-cheque/all loan transactions. An affordable, well priced product still has traction in the market. Many potential buyers are opting to wait for big discounts because of low demand. “End users are expecting discounts and hoping that white money has more currency in the current scenario. Decision-making may be slow but actual users are still around,” they say.
Khushru Jijina, managing director, Piramal Fund Management believes that in the near term, demonetisation is likely to further impact an already muted buyer sentiment across most major markets. This is likely to be reflected across both velocity and pricing, albeit in a more limited way for Tier 1 cities and end-user affordable housing when compared to the smaller towns and cities and the luxury segment. “However, we believe that the medium to long term impact of demonetisation is largely positive especially for the end-user and for financial investors such as ourselves. We have already seen this trend reflected in the immediate aftermath of demonetisation even as sales of well planned, well executed and well-priced residential units continue to take place. Coupled with RERA, this actually fast tracks the ‘institutionalisation’ of a sector that has already been consolidating. Given the immediate impact on sentiment, markets will likely normalise over a three to six month period as we believe that Tier 1 developers and those who already embraced investment grade processes and governance standards will emerge stronger and the average / smaller / speculative developers will be forced to consolidate quicker than otherwise expected.”
The market is in reset mode and demonetisation is only going to transform it into an efficient end-user market. Post demonetisation, there have been cases of some developers escalating prices and accepting some portion of the payment in cash. “Most cancellations have been from investors who are now desperate to get out of deals signed earlier. As many as 35% are cancelling deals signed earlier in cases where the cash element deployed was huge, especially in case of plotted developments and resale properties,” says Pankaj Kapoor of Liases Foras.
Has the NRI market been impacted? The last couple of years has had only those NRIs who wish to return to India, investing in the market as returns from the market have come down drastically. “The NRI market is no longer an investment driven market, the initial frenzy has come down over the years and much of it has to do with the fact that capital appreciation has been greatly impacted and management cost of properties being higher for people living abroad. It is more of an end-user led market now and only about 6% of the total real estate activity is governed by this segment,” says Jain.