From India Infoline
Demand for real estate has remained tepid for quite some time now. Infact, if numbers are to be believed, prices of majority of unsold inventories have remained stagnant for more than 2 years now. And if one was to take inflation into account, then it won’t be wrong to say that the average prices have actually fallen.
So with prices having fallen in real terms (inflation-adjusted), chances of any further correction in prices seem low. But many experts feel that sustained high prices cannot be the only reason for lack of demand. There are large unsold inventories in low-budget categories across many cities. If high price was the constraint, demand for low-cost housing would have been much better. Also, since demand is low, there is a general expectation that developers need to cut prices to sell unsold inventory. But that is not happening. Reason might be something that is not being considered by a vast majority of people.
A sudden reduction in prices by developers will send out a wrong message. It will fuel the already strong negative sentiment among potential buyers. These people will then expect prices to come down further and those who are on verge of making a purchase might postpone their decisions. This in turn will further push down the sales and result in a negative downward spiral.
So what is happening is that inspite of low demand, developers are not cutting down prices. Now the unsold inventory is at various stages of construction. Naturally, people are afraid to put in money in projects that are years away from completion. This fear is causing buyers preferring properties that are either complete or nearing completion. People are also looking to buy only from those developers who have reliable track records and deliver on schedule. So even if developers somehow manage to cut prices of projects under construction, its highly improbable that customers will show any interest in such projects given the inherent risks.