Thu, 09 Jul, 2020

Real Estate in bad state

The previous six months have been the worst for the real-estate sector. Many builders witnessed no sales at all as people weren’t willing to buy due to the ongoing economic slowdown. Unsure of their jobs and finances, people are increasingly not in investing in a flat or a house. The net result is a massive drop in business for developers

21st October 2019, 02:15 Hrs

Karan Sehgal

Not long ago Goa witnessed a massive bull run in the real-estate sector, as the locals wanted to buy flats or houses and even people from other states were keen to buy a second home here. Unfortunately for the developers, those days are pretty much over.

The Indian economy is going through a slowdown making it tough for people to grow their businesses and incomes. As a result, they are not keen to buy vacation homes in Goa. The economy of Goa, which was enduring mining shutdown, has to now face headwinds in the form of pan-India slowdown. Due to which, the locals are having lesser funds to invest in the real-estate. Most developers said that sales in the sector have fallen by at least 25-30%. The demand is less even for 2 BHK flats, which people buy for necessity and not just for investing.

Dr Jagannath (Desh) Prabhudessai, ex-president of the Goa unit of CREDAI, said, “In the last six months, people were not keen to buy at all. Even for a 2 BHK flat costing Rs 45-55 lakhs or a 1 BHK flat costing Rs 30-35 lakhs, there is no demand. There are enquiries for sure, but ultimately people don’t buy.”

The smaller units like 2 BHK and 1 BHK flats are bought by couples who want to have a house of their own. On the other hand, bigger units like 3 BHK and villas are bought by a more mature segment, who have a house but want to invest in a bigger property.

The fact that there is no demand for even 2 BHK and 1 BHK flats show that young people have lesser money today in their hands than they had a couple of years ago. The demand for 3 BHKs and villas is even more affected because buyers in that segment have a house and can always postpone their purchase.

KulaSekhar, a builder from Panaji, said, “The luxury segment of real-estate costing Rs 1 crore or above is the most affected due to the slowdown. There is still some movement in the Rs 50-60 lakhs price segment. But overall there is a 25-30 per cent decline in new transactions this year compared to the previous year.”

At a time when the sector is witnessing such headwinds, even tax on some of its raw material tends to be high. For example, GST on cement is a whopping 28% and steel is 18%. Several builders complained that cement is not a luxury good and therefore it shouldn’t be taxed at 28%. But, the Central Government has not reduced the tax rate so far.

Prabhudessai continued, “In recession times like these, it will really help the sector if the State Government can reduce the infrastructure tax. Reduction in tax may ease the pressure on the sector and may increase demand.”

Recently, the State Government reduced the road tax on automobiles by 50% for three months between October and December. Since the government has reduced tax for one sector, the expectations are that it will reduce it for another sector as well.

Whether high tax or low tax, the main reason for the woes of the real-estate sector is low demand. Another builder pointed out the unsold inventories of flats and houses, which the developers are struggling to sell.

Datta Naik, managing director, Commonwealth Developer Pvt Ltd, said, “The slowdown is such that hardly any builder has announced a new project. The main issue is that the demand is very low. As for the prices, we can’t reduce them for finished real-estate. So, prices have remained flat.”

The builders said that they were not in a position to bring down the price of real-estate because the cost of construction keeps on increasing, which is not in their control. As a result, there are no discount schemes either for people willing to buy.

While most builders did not sound very optimistic about the sector, some of them had a different take on the matter. Kumar Gera, chairman of Gera Developments, said that there is demand if the product is right.

Gera said, “There is no demand for 4-bedroom houses today. But there is demand coming from younger people, who are just married and are willing to buy a 1 BHK or a 2BHK flat. If a builder gets a product right for such a segment, it will sell.”

There is some demand in the system, but most builders have decided to go slow. They are extremely worried about their unsold stock. They are hoping the sentiment to revive in the festive season of Dussehra and Diwali. But overall, the ongoing year 2019 has been the most difficult for the developers in the State.

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