Good news for home buyers this Diwali: Expect a 15% drop in prices

Some good news is finally in the offing for all potential home buyers this Diwali as this month, property prices are likely to fall by 10-15 percent in metros as developers struggle to sell high unsold inventory.

According to Ashutosh Limaye, head Research &REIS, Jones Lang LaSalle, the festive season beginning around Dussehra is typically considered an auspicious time to purchase a property, and should result in a number of developers offering discounts and freebies. He however, cautioned that a massive price cut would not be upfront.

“Builders are less adamant about high property prices and more willing to strike deals because they know that they have to get rid of inventories pretty soon otherwise the stress is going to get simply too much for them to stay afloat,” Lamaye said in an interview with CNBC-TV18.

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Mumbai for example has 48 months of unsold inventory which is an alarmingly high number, given that a comfortable level is generally considered to be 8-10 months.

While builders are willing to offer a 10 percent discount on the current market rate, freebies such as free stamp duty registration, free floor rise charges etc are also being offered. The otherwise chargeable club house or the common amenities membership fees are also being waived off. Then there are certain direct gifts in terms of cars or modular furniture.Some developers are also offering international holidays to rope in buyers, while others are advertising cash-back offers of up to Rs 50 lakh.

However, home buyers in NCR should not cheer just yet.

Says Limaye, “The markets which are more driven by end users will see those offers sooner than those highly governed by investors. That could be one of the reasons why there aren’t so many such schemes floating around in NCR than some of the other cities.”

Secondly, the stress level is much higher on builders in Maharashtra than on those in NCR.

Mumbai for example has 48 months of unsold inventory. No wonder there are much more schemes on offer in Mumbai. NCR in Gurgaon has about 16-17 months of inventory. Developers there can still hope to revive sales with the festival season coming up.

However,if buyers do not respond tofreebies and the soft discounts, some builders will be forced to opt for price cuts, he adds.

“All indicators hint that a price correction is due, sales during the festive season will really tell us,” Limaye said.

Even Sanjay Dutt, executive managing director for South Asia at Cushman & Wakefield, expects a 5-10 percent correction in projects that are already under construction, and a 10-20 percent correction in new launches where construction has not yet begun.

“New launches are where the majority of developers will give higher discounts because they want to fund construction. That’s where the pain is because if you have purchased land [and] spent money on taxes, you’re incurring losses every day,” Dutt told CNBC-TV18.

As for homes that are ready for occupation, prices are likely to remain well supported as there is sufficient demand from genuine end-users.

According to a recent survey byindustry lobby Assocham , home sales have failed to take off despite several lucrative offers. The survey found that the biggest reason for the lack of interest in property was high prices.

Moreover, given the fact that therehave been job and pay cuts across sectors, and inflation has increased the cost of living, economic recovery will take a while. Given this slowdown, even though builders are willing to lure buyers with freebies, they may still defer purchases for a while now.

The only way out for buyers right now is tosell at lower rates and get cash.