Housing Sales Herald a Tepid Gudi Padwa 2018 for Real Estate

Traditionally, the Gudi Padwa festival season is an auspicious time to invest in real estate. Considered a time of renewal, it coincides with Punjab’s Baisakhi, Tamil Nadu’s Puthandu, Andhra Pradesh’s Yugadi and Kerala’s Vishu. Since a large cross-section of Indians tend to link property acquisition with auspicious dates, activity levels on the property market tended to increase visibly in this period. However, Gudi Padwa 2018 is not likely to bring the accustomed uptick, which – though almost non-existent even in the last 2-3 years – arrived to the backdrop of a more complex set of challenges than ever before.

This year, this festive season will be juxtaposed with some interesting market dynamics. The residential real estate market in many cities has been slowing down, and developers are hoping that Gudi Padwa will prove to be a turning point for many developers who have been struggling with slow sales as well as policy-induced compliance pressures and generally negative market sentiment. Indian developers tend to look at tradition-fuelled appetite for housing purchases during festivals like Gudi Padwa so as to mitigate slow sales during the rest of the year and offer lower prices under the guise of festival discounts.

What we are seeing on the ground as Gudi Padwa rolls around in 2018 is a very different picture. A quick look at the first quarter of past few years indicates that sales halved from 90,000 units in Q1 2015 to 45,000 units in Q1 2017, demonstrating a shift in buyer behaviour amidst changing market conditions. Structural changes and policy changes such as demonetization, RERA and GST have certainly also helped to bring sanity into the Indian real estate sector. Investors, who were instrumental in driving up prices in previous years, are no longer a major factor either.

In fact, residential rate trends across the seven major cities clearly reflect that the lacklustre buyer sentiment has had an impact on developers’ previously exuberant price-tagging. While inflation and increased execution costs – and, more recently, RERA compliance costs – have caused inevitable increases, these are marginal at best and nowhere near the adventurous ‘price discovery’ increases which worked in previous years, when investors were still a major factor:

In other words, Gudi Padwa 2018 arrives to the backdrop of still-tepid housing absorption in major cities. This can be attributed to the fact that Indian real estate sector is still in the throes of a major course correction – a journey that has put buyers into an extremely cautious mode which is unlikely to relent on mere tradition-based grounds.

On a positive note, the restricted new launch pipeline and developers’ increasing focus on project completions will surely cause unsold inventory to reduce over time, and demand will soon begin to rise. However, this will not happen in time for Gudi Padwa to save the day.