This period of Navratri, Dussehra and Diwali is considered the most sacred in Indian culture for auspicious shopping and house warming. Usually, this festive season sees a boom in the real estate sector, where builders sell new projects by offering attractive discounts, free parking, modular kitchens or gold coins. But this festive season has not been able to bring that old smile on the faces of the developers. The property markets of major cities like Lucknow, Delhi-NCR, Mumbai, Pune and Bengaluru are seeing the number of site visits, but they are not converting into actual deals (bookings). The common middle class buyer seems to be missing from the market, due to which the overall sentiment of the housing sector remains cold even in the festive season. The biggest root of this slowdown is the serious imbalance between demand and supply. In the last few years, the prices of land in big cities of the country have skyrocketed and the cost of construction materials (cement, bars, labour) has increased drastically. Due to this, most of the builders and corporate developers have completely avoided the affordable segment (Affordable & Mid-Income Housing) of Rs 40 to 60 lakh. The entire focus of the developers has now shifted to premium, 3BHK-4BHK and ultra-luxury flats ranging from Rs 1.5 crore to Rs 5 crore. The result was that 60 to 70 percent of the middle class families, who were dreaming of owning a house with the help of their savings and home loans, are feeling completely helpless in front of this rampant inflation in the market. Disappearance of Affordable Housing: Homes of the common man out of budget The backbone of the Indian real estate market has always been the middle class and first-time home buyers. Earlier, good 2BHK flats in the range of Rs 40 to 50 lakh were easily available in Shaheed Path, Kisan Path, Gomti Nagar Extension of Lucknow or Greater Noida and Raj Nagar Extension of Delhi-NCR. But the aggressive pace at which land prices have increased in the last two-three years has completely ruined this budget. According to property consultants, today no new and quality project is being launched below Rs 60 lakh in major cities. Developers say that building projects at Rs 3,500 to Rs 4,500 per sq ft is no longer financially viable due to high land costs, stringent fees from development authorities and input costs. When there are no budget houses available in the market that are within the reach of a common working family, it was natural that purchases during the festive season were bound to slow down. Over-supply of luxury and premium: Will only the rich buy flats? The second big paradox of the market is that developers have invested huge capital in the luxury and premium segments. A flurry of projects ranging from Rs 1.5 crore to Rs 4 crore have been launched in the name of state-of-the-art facilities like club house, infinity pool, private lift, smart home automation and golf view. Although there are a certain number of high-net-worth individuals (HNIs) and upper-middle class in the country, they cannot drive the entire market. In the initial phase, investors invested rapidly in luxury projects, but now the market of these expensive flats is also gradually moving towards 'saturation'. The wealthy already own many properties and are making limited investments only for rental yield or capital appreciation. The actual end-user himself who is looking for a house to live in is unable to pay such a huge amount. Due to this, the pace of new bookings has slowed down even in the premium segment. Expensive EMIs and slow pace of income growth are holding hands. Along with increased property prices, home loan interest rates are also dampening the enthusiasm of buyers. Repo rates and bank lending rates have remained at high levels for the last few quarters. For an average buyer who takes a home loan of Rs 40 lakh at 8.5% to 9% for 20 years, his monthly EMI directly comes to around Rs 35,000 to Rs 40,000. In contrast, salary increments of employees working in the private sector have not increased in proportion to inflation. When 40 to 50 percent of a family's total household budget is at risk of going towards loan EMIs alone, people start thinking twice before investing the biggest investment of their life. Today, many people find living in a rented house to be a more financially practical and safe option than buying a flat worth Rs 1 crore and paying huge EMIs and maintenance charges. Hidden Charges and Decreased Trust in Under-Construction Projects Another reason for buyers to hesitate during the festive season are the hidden expenses in the final price of the property (Total Cost of Ownership). By the time builders reach the basic selling price (BSP) advertised in the advertisement, by the time they reach the final possession, they add GST, stamp duty, registry fee, external development charge (EDC), infrastructure development charge (IDC), club membership and advance maintenance, increasing the total cost by 20 to 25 percent. Apart from this, despite the strict rules of RERA, there is still a fear among common buyers of not getting possession on time. Bitter experiences of project delays over the past several years have scared people away from taking risks in under-construction projects. Buyers want ready-to-move properties, but their prices are so high that it strains the budget of the common man. This uncertainty is preventing people from depositing token money even during festivals. What are the solutions to revive the market? The real estate sector is an extremely important pillar of the country's economy and employment generation. If this market remains sluggish for a long time, it will also impact dozens of supporting industries like cement, steel, paint and interior. Market experts believe that to revive the sector, both developers and policy makers will have to take joint steps. Firstly, developers will have to change their strategy and return to 'volume-based' affordable and sub-premium models, where small-sized but well-maintained 2BHK flats are offered in the Rs 45-60 lakh range. At the same time, governments should also take steps like temporary exemption in stamp duty, tax incentives on affordable housing and additional income tax exemption on home loan interest so that the confidence of middle class buyers can be restored even after the festive season.
