Customer is king, again

In a discount sale, you can pick up a readymade garment at 40% of its original price. It’s how manufacturers attract buyers to get rid of unsold stock in the off season. But the slowdown in the property market is forcing realestate developers to offer discounts even during, what is considered, the peak season for deals. More importantly, sluggish sales of high-end projects have forced the developers to refocus on the mid-price and budget segments.

The five months between October and February are crucial for the real-estate sector. It’s during this holiday season that buyers are flush with cash. “This period usually sees bonuses earned during Diwali used for investing in real estate. The NRIs who come visiting during the New Year holidays often strike property deals,” says Abdul Bari, a real-estate consultant. The developers usually make a killing by driving hard bargains. This year, things are very different and buyers can expect to be pampered. Inflation and interest rates show no signs of receding and most real-estate companies have witnessed a 40-50% decline in sales in the past year. “Markets are unlikely to revive soon. So it is better to sell a project at a 10% discount and reinvest the proceeds rather than hold it for a year. Who knows, the loss might be higher next year,” says a developer.

Incentives are offered on almost all projects. However, you need to read the fine print of these so-called offers carefully because the actual benefit may be very small. For instance, when a developer promises to pay the EMIs on your home loan for a year, what he might mean is the pre-EMI interest. This can be as low as 10% of the full amount.

Though cash discounts work best for buyers, they are also not as simple as they seem. What the developers give out with one hand, they try to take back with the other. For instance, some developers force buyers to pay extra for covered parking or club membership to avail of such discounts. Says Pankaj Renjhen, managing director (Mumbai), Jones Lang Lasalle Meghraj: “When observed closely, these incentives do not have any significant monetary value.”

The market downturn has also changed the target customer. The developers are trying to cut down on construction costs by building lowrise projects and smaller units. By keeping the structure simple and doing away with parking spaces, basements, large lobbies and extra elevators, a developer can reduce the overall costs by an estimated 25%. This also means that the project no longer sports the premium tag that had become the hallmark of projects between 2006 and 2007. Before the downturn hit the realestate sector, big builders were focusing only on the premium segment, where margins were as high as 60-70% compared with the 20-30% earned in the mid-price segment.

Now, even the biggies are opting for low-cost housing to play the volumes game. Bangalore-based Puravankara Projects plans to build 65,500 low-cost flats in five cities in south India over the next five years. “We are using modern technology for faster and cost-efficient construction,” says Ashish Puravankara, director, Puravankara Projects. “The flats will be 50% cheaper than the existing prices,” he adds. This comes close on the heels of similar forays by Mumbai-based developer Matheran Realty and Delhi-based Omaxe Ltd. Unitech’s luxury township in Gurgaon, Nirvana Country, was planned with villas and high-rise apartments. But the low demand for villas at Rs 1.2-3 crore has forced it to launch two- and three-bedroom flats at Rs 40-50 lakh.

This is good news for buyers. Anshuman Magazine of CB Richard Ellis feels that if bigger players come into the low-priced segment aggressively, smaller players will be forced to offer property at even lower rates. Clearly, buyers have not had it so good for a long, long time.