Economic Survey 2019-20 suggested that the unsold housing inventories can be cleared, if developers take a ‘hair-cut’ by allowing property prices to drop but it may have negative impact on the developers. Further, unless developers are offered incentives, property prices would continue to be high.
In the past few years, the residential real estate sector had been reeling under pressure due to lack of demand, high prices and delayed project deliveries and stalled housing projects. In 2019, however, the demand improved marginally thanks to developers’ focus on mid-income and affordable housing projects, along with buyers’ preference towards reputed developers. This is evident from improved sales in the listed space. Barring few, these companies have performed well in the September quarter FY20, registering a revenue growth of 13 per cent y-o-y.
Despite the demand improvement in the residential market, it was not enough to reduce the unsold inventories levels. It continues to be high at 4.42 lakh units according to a report by JLL, a real estate consultant and it would take over two years for the inventories to be sold in the market.
Incentives for developers
Developers usually incur three major costs – land cost, construction cost and approval costs. Since land costs and construction can’t be reduced directly, Centre has better leeway in reducing the approval costs which in turn would bring down the cost to developers and then translate to lower prices to home buyers.
Ritesh Mehta, Senior Director & Head, West India, Residential Services, JLL India, says “By making the FSI norms friendlier and lowering the approval costs, the Government can bring down the property prices”. Another way is by easing the redevelopment rules, particularly in a city like Mumbai and encouraging developers in redevelopment projects, he adds.
Streamlining of approvals plays an important role in bringing down the cost to the developers as well. Approvals required in a real estate project could take anytime between 9-12 months – from obtaining license, approval of building plan to occupancy certificate. Ritesh says “If the approval takes time and there are changes in the policies, the price of the project goes up. This is one of the main reasons why developers have not been able to bring down the property prices.”
(Source: Business Line)
