Many developers in Pune now refrain from charging any floor-rise premium or any preferential location charges (PLC). Some have also started absorbing stamp duty charges, which should ideally be a buyer’s prerogative.
The Pune residential market used to witness sales upwards of 45,000 units annually during the peak of the Indian real estate cycle of 2011–13. Not just sales, even prices were on an upswing. This was not a Pune specific phenomenon but was observed across the top metros.
As the market was booming, developers tried to make the most of it. Almost every aspect of the house was charged separately and was added to the base price of the flat. The variety of extra charges included – floor-rise premium, preferential location or view charges, cost for specific flat numbers for vastu-conscious buyers, club membership fee, 2 years maintenance in advance without the buyer moving into or getting possession of the flat, parking charges, higher cost for closed parking spaces, etc. Leave alone these separate charges; there was no standardised loading factor for converting carpet area into built-up or super built-up. The buyer seldom had any idea exactly what he/she was paying for. In addition to it, many buyers had to make advance payment of almost the entire flat value in early stages of construction.
Fast forward to 2018, the tide has finally started turning. Developers have taken cognizance of the fact that they cannot take the buyer for a ride any longer. Today, the focus is on completing the project and delivering the apartment to the buyer. A plethora of regulatory factors have also driven this change, like the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Goods and Services Tax (GST).
However, the most important factor contributing to the change is the fall in sales and buyer’s preference for Occupation Certificate (OC) ready projects. In H1 2018, sales in Pune were down 6% year-on-year (YoY) at 16,486 units. Sales for the entire year of 2017 were 30% lower than the peaks of 2012. As per our analysis of the Pune market, majority of the sales that are taking place, are in OC ready projects, as the buyers are looking to avoid the GST burden and delivery risk. For projects that have a mix of under-construction and ready apartments, the buyers are not keen on under-construction units and the sales velocity of under-construction projects has reduced significantly.
Not just sales, even prices have started coming down. The weighted average price for Pune city was lower by 5% YoY during H1 2018, 8% lower from the peaks of H2 2016. This fall in sales along with decline in prices has forced the developers to reorient their strategy and focus on consumers. As the market is not in its pink of health, developers are working hard to entice buyers to their projects, particularly in under-construction projects.
With residential prices rising consistently since H1 2012 till H2 2016, affordability has become a major reason which is keeping buyers away from the market. As a result, some of the costs that the consumers had to bear and pay separately in the erstwhile heydays are being now absorbed by the developer so as to make the house more affordable to buyers. Discounts, gifts and freebies are rampant across the market. Some of them are just marketing gimmicks while others translate into significant cost savings to the buyer.
Many developers in Pune now refrain from charging any floor-rise premium or any preferential location charges (PLC). Some have also started absorbing stamp duty charges, which should ideally be a buyer’s prerogative. As there is no incidence of GST on OC ready projects, the buyers are negotiating hard with the developers to bear the GST in under-construction projects. While there is resistance on the developers’ side to bear it for existing customers but are happy to relent in case of new purchases.
There are handful of instances where developers are offering 2-year rents to flat buyers – in under construction as well as OC ready projects. It does not end there, developers are offering various subventions/deferred payment (5:95, 20:40:40, 20:80) plans in order to make the purchase less strenuous on the buyers. Offers such as free appliances, modular kitchens, 2 years maintenance, lifetime membership for clubhouse and other gifts, such as gold bars, car, lucky draw prizes, etc. on purchase of a flat acquisition are plenty.
The developers generally refrain from reducing quoted prices of apartments; hence they are reducing prices through such indirect discounts. If we look at the reduction in final price of the flat considering the reduction in price due to various incentives schemes on offer, the cost savings is significant. Such discounts were unimaginable until a few years back.
The effective discount due to these various incentives schemes are as follows:
[This is an authored article by Nibodh Shetty, Nibodh Shetty is Consultant – Research at Knight Frank India. All views, opinions and expressions are limited to the author]