After keeping prices artificially high over the past several months, Mumbai-based builders have now turned desperate to sell flats and are offering steep discounts
Pressure is building up on builders. Usually at this time of the year, builders are ready with various schemes to sell high-priced apartments in Mumbai to take advantage of the surge in spending during the festive season.
However, this year, flats are not selling. Though builders in Mumbai have tried to keep prices artificially high for all these months, they have now buckled under and have come up with lucrative schemes to push sales in the residential segment. Among their tactics is making a '10:90' offer.
Under this scheme, a buyer has to pay only 10% of a flat's cost and the rest after possession. Builders offering this scheme are ready to bear the interest burden right up to the time they are able to hand over possession of property.
Builders are taking the hit of interest during construction - which is a kind of hidden discount to the customer. This is very different from the situation when customers used to wait endlessly for a project to be completed and bear the interest cost of the loan they have taken. In those situations, builders even colluded with bank officials to get them to certify that the project had progressed much more than it really had, to get the customers to cough up more money.
The current '10:90' scheme is available for affluent buyers whose budget is between Rs2 crore to Rs5 crore. Indiabulls introduced the '10:90' scheme for a project located in central Mumbai. For this scheme, it has tied up with HDFC and ICICI Bank to provide loans to customers.
Mumbai builders have had extremely ambitious plans to build scores of towers in the central region of the metropolis. These towers were supposed to have luxurious apartments, commanding fancy prices. However, they were clearly unaffordable even for the rich.
To push sales, some builders are also offering cars to property brokers in addition to their brokerage if they meet given targets.
In another option, builders are offering highly discounted rates to those who come up with cash upfront. In one case, a posh apartment in central Mumbai is available for Rs16,000 per square foot for full cash-down payment - when the going rate is Rs40,000.
Even though the '10:90' scheme is attractive, "it is getting a mixed response so far as the offer is only for high-cost apartments," a real estate expert told Moneylife, preferring anonymity.
"Even though such schemes look great, buyers should take precaution as they are being offered for under-construction projects. The completion risks of these projects remain and one must check the builders' track record and financial strength before jumping in," added the expert.
Moneylife has been pointing out that high property values and interest rates, coupled with a lower loan- to-value ratio, are becoming serious obstacles for average homebuyers.
A survey conducted by ICICI Securities recently found that property prices have become unaffordable. According to the survey in which 3,839 ICICI Direct customers participated, 72% of the respondents believed that property prices were unaffordable and 79% perceived property prices to be high. However, a significant section of the respondents indicated that while affordability was a concern, it was manageable.
The survey showed that 48% of the buyers were interested in buying at current prices or were keen to see a marginal correction. The survey was conducted during June-July this year. The survey also found that a larger percentage of respondents in Mumbai and Pune felt that home prices were too high, compared to Hyderabad and Kolkata.