Although, real estate is turning cheaper day by day, it has failed to lure the India buyer. Home buying in India declined to its lowest in seven years, in the year 2017 even though prices slumped, as per leading real estate consultant, Knight Frank. A flurry of new tax laws and a rule rolled out in 2017 have already impacted the sector which is still staggering following the effects of demonetization in the latter part of 2016.
Shishir Baijal, Chairman of Knight Frank says, “At the end of 2017, India’s residential sector appears to have shrunk to a fraction of the size it was less than a decade ago”. The report also states that upcoming project rollouts saw a 41% reduction and sales of new homes were down by 7% in 2017. Hundreds of thousands of properties are lying without being sold yet and it may take at least two years to replenish this inventory to begin with.
The Dice of Reform
Since the 2008 financial crisis, the Indian realty market has never completely recuperated. Even after 2010, it has continued to be in a state of depression with new projects reducing by 78%. The demonetization of two high-value denomination currencies in November 2016 dealt a detrimental blow, especially since the real estate industry has a lot of cash rolling in and out of it. The developers were barely able to recover from this impact when the government, in May 2017, introduced a controller and a flurry of new of directives to bring more transparency into exchanges and dealings. Eventually, the destructive blow was in the form of the GST (Goods and Services Tax) in July 2017. Developers were unable not transfer the higher tax burden surrounded by the slipping demand.
As it was expected, property prices toppled in a large number of urban areas.
Even though other regions of India endured, even Mumbai, India’s most high-priced residential bazaar, was in agony, as property prices went prostrate in 2017—the first time since almost ten years. Moreover, the price-to-buyer’s income ratio (the average number of yearly earnings needed to buy a house) in Mumbai continues to be at a restrictive 7.8—much more than in other prime Indian cities—notwithstanding that it is off its peak of 11 in 2010.
To counter the slump, developers have been offering discounts, and waiving stamp duty, and floor-rise and other charges.
However, the Knight Frank report also assures that the situation is likely to improve in the future, the Knight Frank report says. More specifically, the fall in prices and the shrinking of unit sizes will help in promoting affordability, it said. “The past 12-odd months were an acid test of sorts for the real estate sector in India,” added Baijal. “Its overall resurrection would depend upon the long-term impact and benefits of the structural reforms brought in over this time.”