Amit Haware, the chief executive of Haware Properties, a developer in Mumbai, is hopeful that the festive season will bring some cheer to India's real estate sector this year. With the Diwali celebrations coming up this week, this is traditionally considered an auspicious period by Indians to buy homes and other assets.
“Diwali is the biggest festival of the year,” says Mr Haware. “We’ve sold more than a hundred flats in our affordable housing projects in the last couple of weeks. I think that this Diwali will be higher than last year. We see signs of a revival.”
The country’s property market has faced a challenging time in recent years, hit by the government’s demonetisation move in November 2016, when the two highest value banknotes were suddenly banned, and before that, soaring prices and steep interest rates hurt prospects.
Sale volumes in major cities including Chennai, Bangalore and Mumbai fell sharply in the past few years, dropping by 62 per cent across eight of the country’s biggest cities last year, from the highs of 2011, Knight Frank’s data reveals.
Average property prices fell by 3 per cent in India in the first half of this year compared to the same months last year, according to property consultancy Knight Frank. In Mumbai, for example, prices fell by 5 per cent in the first half compared to the same period last year to 7,333 rupees per square foot (Dh369).
But there are some green shoots of improvement in the market in terms of demand this year, with home sales picking up by 3 per cent to 124,288 units in the first half, the consultancy's data show.
“Traditionally, Diwali has been a time to draw in investors, so the developers have focused on launches and offers around this time to capture the festive spirit,” says Arvind Nandan, executive director, research at Knight Frank India.
“But end users appear to have gone after suitable properties round the year.”
This demand was nudged by the pickup in the economy, and new regulations which have improved transparency in the country's sector. GDP growth came in at 8.2 per cent in the April to June quarter, according to official data, making India the world's fastest-growing major economy.
The property sector is an important contributor to the subcontinent’s economy, accounting for between 5 to 6 per cent of GDP, according to a report by JLL and Credai, which forecasts the industry will make up 11 per cent of GDP by 2020.
Developers say that the newfound momentum in the sector appears to be continuing.
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“The demand for new homes this festive season has seen a small surge, accordingly we also registered a nominal spike in terms of enquiries for the affordable segment and a decent number too as far as the luxury segment is concerned,” says Rahul Shah, the chief executive of Indian developer Sumer Group.
“While the industry is yet to recover from the impact of demonetisation, the goods and services tax and other landmark announcements; there is a large amount of supply vis-a-vis demand, and hence customers are having a lot of options to choose from.”
For the festive season, developers always announce a slew of offers, including discounts and freebies such as cars and gold to lure home buyers.
“Both developers and customers look forward to the festive season given that customers expect offers and great deals coming their way and developers expect increased sales,” says Lalit Makhijani, the chief marketing officer at Godrej Properties, a developer which is part of one of India’s biggest and oldest conglomerates, Godrej Group.
“A lot of developers launch new projects or new phases of existing projects with a hope to see good numbers coming in. Similarly, customers postpone their buying decisions hoping to get a good deal.”
He explains that Godrej has “seen an uptake in sales during the festive period, and our recent launches have garnered good response from our customers”.
These big ticket offers are still occurring this year in India for Diwali, plastered across the pages of the newspapers, but this year the general trend has been towards developers offering less glitzy promotions.
“While we continue to witness attractive discounts and offers at this time, we do notice a water down in sensational schemes,” says Mr Nandan. “Most developers are offering subvention schemes, additional benefits and calibrated payment schedules to make purchase attractive, instead of too-good-to-be-true schemes.”
Haware Properties is one of the developers that have launched “subvention schemes” to boost sales, which allow buyers to pay a certain percentage of the value of a home upfront – say 10 per cent – and nothing else is paid by the buyer until the time of possession, as the developer pays the bank the interest on the loan until then.
“When I talk to the customers, they’re intelligent now to understand that freebies aren’t really freebies, and they’d rather get discounts in the prices,” says Mr Haware.
But some companies have reservations about the pickup in demand, and were hoping that they would have more to celebrate this Diwali.
Raja Mukherjee, the chief marketing officer at Sowparnika Projects and Infrastructure, based in Bangalore, says that “during this festive season there have been huge enquiries and transactions have also increased, but not to the quantum at which we thought”.
Nevertheless, there has been a substantial improvement on last year’s festive season, he explains, with transactions up for the company by 20 per cent, compared to last year.
“That’s very positive,” says Mr Mukherjee.
Helping buoy the market are also reforms introduced by the Indian government that have now started to settle in. These include the real estate regulation and development act (Rera) which was implemented last year.
Under this act, developers are responsible for paying the interest on bank loans in the instance of construction delays, whereas earlier, home buyers had to bear the cost. Rules also state that 70 per cent of the money collected from customers has to be deposited in a separate bank account. There are penalties for builders who fall foul of the law.
Developers and analysts say that this has helped to improve confidence and transparency in a sector which had become notorious for having a number of fly-by-night companies.
“With the now discernible impact of Rera, demonetisation and GST, housing sales are seeing an upward trajectory in 2018 quarter-on-quarter,” says Anuj Puri, the chairman of Anarock Property Consultants, headquartered in Mumbai. “New launches have also gone up this year with affordable housing witnessing significant growth.”
There are other factors affecting trends.
The rupee in recent months has fallen to a series of record lows against the US dollar, largely because of the greenback gaining strength. This poses an economic and inflationary risk, which could eventually hamper demand for homes among the local population, but at the same time, it is leading to a rise in interest from non-resident Indians who want to buy homes. They can get more rupees for their foreign currency, effectively making property purchases cheaper for them.
“NRIs see India’s rebooted real estate market environment conducive enough to justify property investments, especially on the back of the depreciating rupee,” says Mr Puri.
