Developers Resist Government Pressure to Reduce Real Estate Prices
Despite government appeals, real estate companies in India appear hesitant to lower property prices. Major players like DLF, Parsvnath, and Emaar MGF are calling for tax reductions rather than committing to price cuts.
The Confederation of Real Estate Developers Association of India (Credai) has urged its members to reduce prices, but this call has largely gone unanswered.
Tax Rollback Demands
DLF Chairman KP Singh emphasized the burden of taxes on the real estate sector and advocated for their rollback. "The government has imposed a number of taxes on the real estate sector. It needs to roll them back,” said Singh. He stopped short of committing to price reductions, stating that "prices are a function of demand and supply. Today, supply is far ahead of demand.” Singh believes that stimulating housing demand hinges on lowering interest rates to 6-7%.
Interest Rate Cuts Seen as Key to Market Revival
Many developers share Singh's view, anticipating that the Reserve Bank of India will cut interest rates, thereby attracting homebuyers back to the market. A significant number of developers believe price reductions are currently unfeasible.
Emaar MGF's managing director, Shravan Gupta, believes lower interest rates and improved economic sentiment, not price cuts, are the solutions to revitalizing the residential market. Gupta says several micro-markets across the country have already seen a correction of 20-25%. "We have already cut prices, which have brought our margin down to 15% from 30% last year. If we cut prices further, our margin will get wiped out,” said Gupta.
Focus on Smaller Homes, Not Lower Per-Square-Foot Prices
Parsvnath Developers chairman Pradeep Jain echoed the sentiment that price reductions are improbable. He suggests that builders might focus on smaller homes to reduce overall costs. "The ticket size will get smaller for making homes more affordable. But per square feet rate will not come down,” Jain explained. Interestingly, Jain, who also serves as the president of Credai's Delhi chapter, recently urged the organization's 3,500 members to reduce prices.
Differing Views on Price Correction
Developers have diverse perspectives on the extent of price correction in the residential market. While Emaar MGF's Gupta points to a 25% correction in several micro-markets, Parsvnath's Jain maintains that prices have been stable. Rohtas Goel, CMD of Delhi-based Omaxe, asserts that prices have already hit "rock-bottom" with corrections of 40-50%.
Developers clarify that these corrections are not based on past transaction prices but rather on estimated prices for similar projects in a healthier market. “There is no benchmark to compare rates of new launches. We can only compare it with our estimates of prices, which similar projects could have fetched in good market,” says Gupta.
This makes quantifying price correction challenging and open to interpretation. Furthermore, developers explain that price reductions are primarily seen in new launches, as existing buyers would resist price cuts in ongoing projects.