India developers dangle promos and discounts to lure buyers as sales continue ‘downhill ride’

India’s recent boom in inner city housing has hit the skids as high prices and low pay rises put potential buyers off. Exotic deals and discounts are now the norm, but so far, with limited success.

Towers stand under construction among other residential and commercial buildings in the Mahalaxmi area of Mumbai. Dhiraj Singh / Bloomberg

India’s housing market is under pressure, as developers delay new projects and bombard potential buyers with offers ranging from discounts and waived fees to free air miles in an effort to revive sales.

“There is no denying that there has been a decent correction in prices in some markets and inventory pile-up across metros over the last year,” says Sumit Jain, the co-founder and chief executive of CommonFloor.com.

Depressed sales have pushed developers into coming up with innovative offers to tempt buyers.

“Developers are coming up with a range of new initiatives to infuse more positivity into the market,” says Rahul Purohit, the principal partner at Square Yards, an Indian real estate consultancy. “Increasingly these initiatives are becoming popular all over India.”

In Mumbai, for example, research by Knight Frank reveals that the housing market is “reeling under tremendous pressure” with a 47-per-cent drop in new launches in the first half of the year, while there are 200,000 unsold homes in the Mumbai metropolitan region, as sales continue their “downhill ride”. Demand has dropped by 30 per cent over the last two years, the firm’s figures show.

Home sales of 28,446 properties and new launches of 18,887 units between January and June this year made it “the worst half-yearly period in the post global financial crisis era”, according to Knight Frank.

The premium market in Mumbai in particular has struggled, with no new launch in the last six months, it says.

Factors including a soft rupee and high inflation over the past couple of years have had an effect on home sales.

“Several reasons erupting over the last few years have contributed to the current mess,” according to Knight Frank.

“Muted property price growth expectation and booming financial investment alternatives have weakened the investment rationale for property, thereby keeping investors away. On the other hand, for end users, high property prices and low income growth continue to be the top concerns. Notwithstanding the coping strategies – easy financing schemes and freebies – adopted by developers to revive demand, these factors took a toll on market momentum.”

Knight Frank is forecasting “modest improvement in market momentum” in the second half of the year and “stagnation on the price front” in Mumbai following slow growth of 2.5 per cent in weighted average prices in the first half of the year.

But a report released by Ambit last month stated that property prices in Mumbai could fall by 50 per cent.

Other Indian cities have also fared badly. Data from CommonFloor.com shows a 56 per cent decline in residential launches in Delhi NCR (national capital region) in the second quarter of this year compared to the same period last year, while Bangalore experienced a 73 per cent drop, Hyderabad a fall of 82 per cent, and launches in the Mumbai region declined by 74 per cent.

“The Mumbai residential market is grappling with a huge inventory pile-up which is primarily due to overpriced residential market,” says Mehul Thakur, the director of Viva Homes, a developer based in Mumbai.

He adds that price movement is “a contagious phenomenon” and if one builder drops prices, then others will follow suit.

Mr Jain points out that potential buyers stand to benefit from the weak market conditions and that the offers are having some effect.

“Discounts and incentives – up to 20 per cent – through interesting schemes and plans so as to lure homebuyers … in-turn help in demand creation, which is essential in the current scenario.”

Tata Housing recently announced a promotion for non-resident Indian (NRI) buyers of free Jet Privilege miles, the air miles scheme of Jet Airways, on purchase of a home in its housing projects.

Other deals now on offer include the promise of free cars and modular kitchens, as well as various financing packages.

One of the deals the Mumbai developer HDIL has come up with allows customers to make a down payment of 1.2 million rupees (Dh67,750), while the remaining balance does not have to be paid until after the possession of the flat. The developer pays the interest on the customer’s bank loan until that time.

“A new offer most of the time leads to a significant increase in inquiries, and the same has been witnessed by us as well,” says Hariprakash Pandey, the senior vice president, finance, at HDIL. “The inquiries have more than doubled after introducing various new offers.”

Prashat Mirkar, the vice president of marketing and sales at the House of Hiranandani, a developer with projects in Bangalore, Chennai, Hyderabad and Mumbai, explains that there are varying performances across different segments.

“We feel that the slowdown is acute only in the high-price segment,” says Mr Mirkar. “The mid-range segment, which we cater to, continues to hold steady. For the market to return to the boom of 2006 to 2008 might not be necessarily a good thing, but we definitely could see a steady improvement in 2016.”

The developer has introduced offers including rent back for its Chennai project, under which the customer pays 25 per cent upfront and the remaining 75 per cent is paid at the time of possession. In the interim, it pays rent to its customers. In Bangalore, House of Hiranandani is waiving the premium for homes on higher floors.

The government’s push for “housing for all by 2022” is leading to increased focus on budget homes.

“From the affordable housing point of view, we see a lot of potential in the market,” says HDIL’s Mr Pandey. “With the government’s focus on making housing affordable to the common man through policy amendments, the country’s metros collectively have witnessed a major boost in terms of affordable home launches during the first half of 2015.”

With interest rate cuts and an improving economy, he believes that property sales could “revive” towards the end of this year.

Kamal Khetan, the chairman and managing director of Sunteck Realty, also believes that the market will start to show signs of improvement in the coming months following a challenging period in which potential buyers have been waiting on the sidelines.

“The property prices are beginning to stabilise and developers have started offering good deals,” he says. “Fence-sitting buyers will be encouraged to hit the buy button by the end of this year.”

The outlook is “lukewarm”, according to Mr Purohit.

“Prices in the NCR and Mumbai region will roughly remain stable,” he says. “There will be increase in absorption levels, but given the high supply in the market, it would not translate into any substantial price appreciation.”

Indian expats have become increasingly important to developers amid such market conditions.

“One important trend that needs to be understood that at present the dynamics of Indian realty is also strongly influenced by the rise in activities by the NRI segment,” says Mr Purohit.

He adds that there has been a surge in demand from Indian expats based in countries including the UAE. “Bangalore is receiving the highest volume of NRI investment followed by other markets such as Ahmedabad, Pune and Mumbai.”

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