Waiting may be over for home buyers who have been on the lookout for a great deal for years now. It is for the first time in seven years that the real estate industry is seeing a price correction with a substantial drop in actual purchase price due to discounts from developers.
“After refusing to budge for years, developers in Kolkata have finally blinked. The weighted average price that the developers used to quote would remain constant, even in adverse conditions. But around 50% developers used to offer discounts on the effective price that is arrived on negotiation across the table. Now, more than 80% developers are offering discounts. This, with the constant price despite the 4.5% inflation and actual rise in construction costs, takes the effective discount to 12% and makes homes in Kolkata the most affordable in years,” said Samantak Das, chief economist and national director (research) at Knight Frank, an international residential and commercial property consultant.
Prices have come down the most in Tollygunge by 17%, and the prices here range between Rs 5,500 and Rs 13,500 per sqft depending on the level of development. A 12% price correction can be seen in Rajarhat-New Town where prices range between Rs 4,000 and Rs 6,000. Prices in Ballygunge, Park Street and Rawdon Street have remained static while Salt Lake, Behala, BT Road, Jessore Road, Madhyamgram and Narendrapur have witnessed a lower price correction in the 2%-4% range.
Most developers are offering an upfront discount of 7.5% to ensure that customers are not discouraged by the 12% GST payable now against the 4.5% service tax earlier. Developers are also offering schemes to sweeten the deal, like parking spaces. The reason for the generosity is record low sales of 14,147 units in 2017, lower than in demonetisation-hit 2016 when 17,647 units were sold.
Credai-Bengal president Nandu Belani puts it differently. “Discounting was always there, but what has happened now is that buildings are absorbing the rise in cost due to the impact of GST. Since 2011, construction cost has increased by 10-15%. But prices have remained constant. That reflects the market sentiment and the extent to which developers have gone to encourage sales,” he said.
With sales drying up and unsold inventory up 5%, developers are not going for new launches. Against 20,984 units that were launched in 2016, 15,940 units were launched in 2017, a decline of 24%. While the average age of inventory is already three years, the Knight Frank survey says the inventory of 39,252 units that lie unsold at the end of 2017 will take three years to sell, thereby pushing up the sales period to six years.
Credai India VP Sushil Mohta expects demand to grow once the state notifies the West Bengal Housing Industry Regulation Act.