Consumers waiting for real estate price correction – Survey

The prices of residential real estate continues to remain unaffordable and are leading to a ‘wait-and-watch’ approach among consumers, real estate consultant Anarock Properties said, quoting its sentiment survey for the first half of the year.

While the real estate sector has been facing a slow down owing to demand-related problems for the last four years or so, houses have become less affordable to the average consumer during this period, instead of becoming more affordable, Anarock Chairman Anuj Puri pointed out.

“A fundamental economic principle states that when supply exceeds demand, prices tend to fall,” he points out.

“Considering the high unsold inventory that the Indian housing market is grappling with (over 6.65 lakh units in the top 7 cities), property prices should logically have come down,” he added. “This has not happened in the case of Indian real estate – at least not sufficiently.”

Instead, homes seem to be becoming less affordable, he pointed out, quoting RBI’s latest Residential Asset Price Monitoring Survey.

According to the survey, on average, a person could buy house by setting apart 56.1 months of his monthly income in 2015. By March 2019, he needed income from 61.5 months to buy a house, Puri pointed out.

Because of this, Puri pointed out, consumers are ‘sitting on the fence’, hoping for a ‘massive price correction’ that has been talked about for long.

“While several factors are causing them to sit on the fence instead of taking the plunge, one of the major reasons is the price of acquisition. Despite past corrections and ongoing discounts, prices are still too high to be attractive for many.”

He said the high unsold stock on the market too points to a pricing problem for the industry.

“Today, most developers have begun launching projects in the ‘affordable’ and ‘mid-range’ segments, but the response from consumers is not encouraging. This is because due to high land prices in city centres, affordable projects are either in the far-flung peripheral areas where infrastructure is not well-developed – or if in central areas, the homes are too small to accommodate a 2-3 member family comfortably.

“At the end of the day, size does matter and if people can stay in more spacious rental homes instead of buying pigeon coops, without having to compromise on location, the choice tends to be a no-brainer. Buying a home is supposed to be an upgrade, not a downgrade in lifestyle.”

At the same time, said Puri, who runs one of the top real estate consulting firms in the country, he was not very hopeful of price corrections either.

He said input costs, including the cost of funds, remain high for developers, and they are unlikely to slash prices.