With the Real Estate Regulation Act round the corner, developers have been offering discounts but buyers are staying away in the hope of a further fall in prices. (Reuters)

Property prices in seven of the country’s top eight cities fell in the three months to March with builders eager to liquidate inventory in a market badly hit by demonetisation. With the Real Estate Regulation Act round the corner, developers have been offering discounts but buyers are staying away in the hope of a further fall in prices. In Maharashtra, the new law — which will disallow pre-launch offers — could become effective as early as May 1.

The correction in prices of homes may have been small but inventory remained high at 4.71 lakh units as transactions slowed significantly; just 28,131 units were sold in the quarter across eight cities. Predictably, new launches were lower by about 20% compared to the December quarter. Data from research firm PropEquity show the weighted average price of unsold apartments across eight cities fell by 1.67% sequentially over the December quarter to `6,185 per sq ft.

Ironically, residential affordability is at its best level in nearly a decade with mortgage rates at seven-year lows and property prices having been weak for about three years now. Analysts at CLSA noted that potential customer traffic to developer sites is not as adversely affected as sales, particularly after the early-January mortgage rate cuts.

Chennai saw the steepest fall in capital value of 4% in the March quarter while Mumbai, India’s most expensive residential real estate market, corrected by 1.2%, the data show. Gurgaon, traditionally an investor-driven market, saw sales in the March quarter drop to the lowest in the last five quarters.

Sales are crawling despite attractive discounts and freebies. Navin Makhija, MD, Wadhwa Group, confirmed builders are sweetening offers. “We are offering more flexible payment timelines and also customised interiors at no extra cost,” Makhija said. Registrations of residential property in the Mumbai Metropolitan Region stayed at a six-year low in November and December 2016. Knight Frank India observed in a report that 2016 had ended with the lowest launches and sales since 2010, due to demonetisation.

With sales unlikely to pick up soon, leveraged developers could be in trouble. India Ratings and Research noted in a recent report that falling sales have dimmed hopes of cash-strapped developers being able to refinance their debt obligations in FY18. “The sector has mainly relied on refinancing to meet its debt servicing obligations, given the negative cash flows. Such refinancing has provided a cushion for developers to hold prices despite slowing sales, and the high prices will further delay recovery in sales and cash flows,” the report said.