Slowdown in property sales: High demand for homes but buyers aren’t many

Hindustan Times, Bengaluru/Mumbai/Pune | ByMadhurima Nandy, Naresh Kamath and Abhay Vaidya
Dec 21, 2017 10:55 AM IST

The slowdown in property sales happened 4 years ago, propelled by high prices. Analysts say buyers are back but are too few in number to pull the business out of the slump

Homebuyers are trickling back but the slump in India’s real estate sector continues to pinch businesses, despite high demand for houses, stable property prices and a large inventory on sale.

DLF Ltd, the country’s largest real estate developer, suspended home sales on May 1 on a cautionary note due to the new real estate law and resumed only in November.(HT File)
DLF Ltd, the country’s largest real estate developer, suspended home sales on May 1 on a cautionary note due to the new real estate law and resumed only in November.(HT File)

Developers are trying new tricks to lure buyers, ranging from a slew of price cuts, offers such as no floor rise (the premium buyers pay for apartments on higher floors), zero goods and services tax (GST), payment flexibility and lenient loans. These offers were on ample display at the recent Maharashtra Chambers of Housing Industry (MCHI-CREDAI) realty exhibition in Mumbai.

Still, the market is down.

“The biggest challenge now is to transform the mindset of the customer and infuse trust in him. It is too early to predict how sales will shape up after this six-month break, but I would think the recovery in the sector will take another year, at least,” said Rajeev Talwar, the chief executive officer at DLF Ltd.

DLF Ltd, the country’s largest real estate developer, suspended home sales on May 1 on a cautionary note due to the new real estate law and resumed only in November. The company clocked zero sales in six months.

The slowdown in property sales started four years ago, propelled by high prices, delays in handing homes and loss of faith in builders not keeping their promise. Regulatory changes such as implementation of the Real Estate (Regulation and Development) Act, or Rera, and the GST added to the disruption (although both are fundamentally good measures).

According to property analysts, buyers are back but too few in number to pull the business out of the slump. Most sales are in the lower price range and many developers in larger cities are struggling to offload residential stock.

“The good thing is that the market has been able to hold up, but it’s mainly been in the affordable segment, in the Rs40-lakh range. Builders have committed much more than they have delivered leading to huge pile-up of inventory,” said Pankaj Kapoor, the managing director of Liases Foras Real Estate Rating and Research Pvt. Ltd.

Kapoor believes that this is an opportune time for serious buyers as prices have stabilised and developers are offering a range of incentives, particularly for ready-to-move in homes.

Data published by Liases Foras on November 29 show sales across Tier I cities declined with Chennai leading the slump at -13%, followed by Kolkata at -8%, in the July-September quarter compared to the preceding three months.


The implementation of Rera and GST this year slowed the pace of project launches and sales just when realty firms were recovering from the November 2016 demonetisation drive, which wiped out 86% of the cash in circulation in the country.

The real estate law is designed to protect millions of homebuyers facing harassment because of limited legal options at times of dispute. If the new law forced developers to be more responsible and accountable, the GST pushed back sales with additional levies.

Buying property attracts GST at a net effective rate of 12%, as against around 5.5% of sales tax plus service tax before the new tax regime was enforced this July; there’s another 6% stamp duty charge in a city like Mumbai. So for an apartment of ~1 crore, a buyer has to pay another ~18 lakh.

“This is a huge burden and buyers feel they can get a home at Rs 18 lakh on the outskirts of Mumbai,” said Rajesh Vardhan, director of Vardhman Builders.

The GST input credit tax, which is reimbursed, is hardly around 3%. That means the consumer still has to shell 15% extra as taxes. Vardhman Builders, which has five projects in Mumbai and its outskirts, witnessed a drop in sales by over 75% since GST was implemented.

Pune-based Panchshil Realty’s chairman Atul Chordia said home bookings have almost stalled, pulling down sales across the city. Ready projects are selling marginally more as GST isn’t applicable on completed apartments with occupancy certificates.

Unsold residential stock in major cities increased marginally in the September quarter with Chennai witnessing a 20% increase, followed by Kolkata at 13%, Mumbai metropolitan region at 8% and Pune at 7%, according to the Liases Foras report.

Property advisory Knight Frank India’s chief economist Samantak Das said the slowdown in the information technology sector has also affected the market, especially in IT hubs such as Pune. He too expects the market to be stagnant “for at least 10 to 12 months”.

Affordable homes

India’s housing shortage at the beginning of the 12th Five Year Plan, 2012 to 2017, was estimated at 18.78 million units, according to a Union housing ministry report.

Analysts said the demand hasn’t waned but affordability is a clincher in a decision to buy a home.

Of the 64,781 homes that sold across top eight cities in the July-September period, 23,493 were priced between ~25 and ~50 lakh. Only 3,658 homes were in the ~3 crore-plus range.

Top developers are increasingly focusing on affordable housing, backed by government incentives. They are also reducing prices on a buyer-to-buyer basis.

Shrikant Paranjape, chairman of CREDAI, said Pune has a substantial inventory between ~20 and ~60 lakh that is attracting buyers. In Mumbai, India’s most expensive property market, builders are launching studio and single-bedroom-hall-kitchen apartments in large numbers to suit the homebuyers’ budgets. These are in the range of 180 to 400 square feet, priced at ~40 to ~60 lakh.

“Price cuts are necessary to maintain sales momentum,” said Pratik Patel, the director of Rajesh Lifescapes. The Union cabinet’s decision this November to increase the carpet area of homes under the government’s affordable housing scheme could prove to be good news for middle-income homebuyers.

Jaithirth Rao, executive chairman and director at VBHC Value Homes Pvt Ltd, says: “Many investors have exited, leaving serious end-user buyers in the market. They were fence-sitting so far, but that is slowly getting better.”

Exciting news! Hindustan Times is now on WhatsApp Channels Subscribe today by clicking the link and stay updated with the latest news!" Click here!
Get Latest India News along with Latest News and Top Headlines from India and around the world
Story Saved
Live Score
Saved Articles
My Reads
My Offers
Sign out
New Delhi 0C
Sunday, September 24, 2023
Start 14 Days Free Trial Subscribe Now
Register Free and get Exciting Deals