We know our country is one of the biggest real estate markets. Housing, retail, commercial and hospitality are the four wide branches of the industry. One point should be remembered the growth of these sectors is highly dependent on the corporate environmental growth, the demand for residential projects and office spaces. Recently, the market has witnessed a slump in property prices due to various factors. Let us see here the reasons for the slump in the real estate industry.
Unstable economic condition
Increased inflation and economic recession are the main factors for many companies’ layoffs. This ultimately resulted in increased unemployment. The poor economic condition has been a setback for purchasing houses and even prevented people from investing in anything. Notably, some years ago many people lost their jobs in various sectors and the hiring rates also fell. On the other hand, Indians started losing their jobs in abroad too which significantly reduced foreign exchange remittances.
High taxation
Though GST has replaced multilayered taxation system which was previously applicable on home purchases, it has not resulted in better cost-efficiency. 5% GST and 1% are taxed for under-construction and affordable homes. However, it does not include Input Tax Credit (ITC) which would have decreased the overall purchase cost. Additionally, 5-7% stamp duty and registration charges apply to both under-construction and ready-to-move homes but the cumulative extra cost on under-construction homes efficiently wiped out most of the price advantage they used to offer. Not surprisingly, today most housing purchases are available as ready-to-move properties which don’t attract any GST. However, the property developers like GP Homes require working capital for completing their ongoing projects. The overall slowdown in the sector makes buyers averse to invest in under-construction projects.
Delayed projects
One of the major concerns is the delayed completion of projects. It is reported that more than 25% of the Indian projects are not completed on time. Poor project management, rising construction cost, rising inflation and cash demand faced by the builders are the main reasons for the delay. Majorly, the funds have been diverted in establishing new projects rather than completing the ongoing ones. These factors diminished the trust of consumers and simultaneously the realty market ended up in a declination.
Increased price
Research shows that even reputed promoters and builders are facing increased inventory issues. This situation pressurizes the builders to lower prices ultimately. However, they are struggling to do so because of high construction cost and delays in getting approvals. At the same time, selling the existing properties at lower prices shows a drop in property prices in the area which raises disappointments among the existing owners. One side the inventory keeps piling up and another side discouragement is seen in constructing new houses. They eventually lead to a slowdown in the industry’s growth.
Tech-oriented homes
Availability of high-tech homes like smart homes reduced the demand of conservative residential units and they turned redundant. They are also added to the inventory backlog which aggravated the slowdown. Despite the recession, smart homes are not being sold for cheaper rates. This low affordability leads to low demand.
To overcome the sectoral slump, a big stimulus package is expected from the Indian and state governments to revive the housing industry. The recent news of Finance Ministry says “The Government and Reserve Bank of India are working to resolve the issues being faced by the realty sector” brings a ray of hope among the realtors.