Genuine or just an eyewash?

A major casualty of the current global meltdown has been the real estate sector. With uncertain job scenarios and companies cutting costs across the board to tide over recessionary trends, buying a property is lowest on the priority list. Making do with what you have is the new mantra with focus narrowed down to keeping the job in hand where spending is tightly reined in.

Luring such an unwilling customer requires more than perfunctory corrections in pricing and developers are undoubtedly aware of this. The last few months have seen a range of freebies and incentives offered to tempt the buyer.

Thus, offers like “buy a flat and get a kilogram of gold free” or “opt for a free site,” “buy a farm land and get a farmhouse free” are no more a product of imagination. Of course, offers such as these raise doubts about units actually getting constructed and delivered on time, questioning the prudence of investing in such ventures.
Sustainability

Some offers do appear genuine, the cost built into the unit offered for sale, yet others fail to have economics and sustainability in place. The question arises, is the customer being sensible to fall for such offers. Is the price quoted genuinely marked below market rates?

Says Girish Puravankara, Managing Director, LGCL, “Our offer of 30 per cent below the prevailing market rate for our villas was possible through smaller profit margins, good planning, low overheads and an efficient team.” According to him, there is no case of falsely luring customers as they are well aware of existing prices and quality expected.

“This is especially the case in a recessionary market as compared to a boom period when not many checks are done before purchase.” The villas are to be built with 98 per cent efficiency in the usable area with no compromise on quality to accommodate the lower price, he adds.

Concurs Parag Sen, V-P, Sales and Marketing, Golden Gate Properties, “Typically our margins are less and we reduce cost through innovation and low wastage. Besides, our volumes make our pricing competitive.”
Goodwill money?

Construction cost remains the same throughout the country for a given level of quality, he says. The high price differential is attributable partially to goodwill money charged by established developers and the unwillingness to pass on to the customer any reductions in cost. Incidentally, the developer offers value-added promotions such as furnishings for the finished apartment at a marked down price of 30-35 per cent.

“The discount is offered by the brand that sells the furniture. We work out a deal with them on a no profit-no loss basis,” he adds.

With the bleak market scenario deterring even customers who want to graduate from an apartment to a villa from doing so, the Alliance Group recently came up with an innovative option of exchanging an old apartment for a villa in one of their upcoming projects.

“We believe in innovation in product and sales and this exchange was a result of that in tune with today’s market conditions,” says Manoj Namburu, Chairman and MD, Alliance Group.

As for piling up of stocks in the form of unsold apartments impacting liquidity of his venture, he is quick to add the exchange offer is open only for the first 50 units. “We ensure sustainability of our projects by not only making prices realistic but progressive where the first set of units is sold at cost price and the rest at a higher rate in relation to their level of completion.”

Referring to the severe liquidity crisis in the residential market, Anurag Mathur, Managing Director, India, Cushman Wakefield, says, “Developers are facing severe resource crunch with sales at an all-time low. Some of the freebies offered to push sales are genuine while others a mere eyewash. The discounts are significant in fresh projects.”

He points out that these discounts and freebies are more to do with lesser-known projects though the future may see this extended to reputable ones. As for determining the realistic price of a unit, he uses late 2005 or early 2006 prices as the benchmark for getting good value on a purchase.

Indicating correction of prices started in early February, Amit Bagaria, Chairman and CEO, Asipac, says, “The bottom of price correction is bound to be hit in the next 5-6 months.”

According to him, while price correction would not exceed 30-40 per cent, those yet to correct their prices will do so in the coming months while those who have will be unable to reduce it further, given cost considerations.
Volume sale

“Increase in margins by top builders to 50-60 per cent has prompted buyers to shift to lesser known developers who have realistic margins. The present crisis is not merely of low demand that has dipped by 20 per cent but of huge increase in volume on the supply side.”

As for sustainability and genuineness of the freebies and discounts offered, he feels the best deal would be in terms of payment while liquidity factor is solely dependent on individual builders.

Adds Koshy Varghese, MD, Value Design Built,

“Any price correction should be realistic, based on cost considerations. Any discount or offer should be sustainable to prevent the project from running into problems.” Sums up Guru Prasad, Joint MD, Chaithanya Projects,

“To develop a sustainable model, the incentive should be a price cut that affects EMI positively. Innovative schemes can lead to trouble, more so where projects are large and risks equally so.”