Price-guarantee schemes by the developers if the property value falls- Will the scheme work?

There have been a lot many times when Real Estate investment comes in a wait and watch phase. The ban on Rs 500 and 1000 notes which was declared on the 8th November 2016 impacted Real Estate in a big way. There has been a lot of news about the price correction and the buyers who were preparing to buy a house are now waiting for revision in property prices. The number of sales inquiries’ has become negligible. Even the buyer’s who are cash rich, are not willing to spend their money on Real Estate at least. 

With such market scenario, to push sales, the developers have started offering home buyer assurance of adjustment or compensation if property prices go down in the near future. Such schemes and assurances are particularly aimed at prompting the immediate clients who were preparing to invest in a property. Mumbai, Delhi, Bengaluru and Pune have been the key markets for Indian Real Estate. As per a lot of developers and sales consultants, there has been almost 40% drop in the sales inquiries in the past one month. While the secondary market always had a higher figure of cash transactions, the deals have come to standstill. The seller wants cash in either in the new currency or completely white, while the buyer is either reluctant to buy or negotiating for the price. The primary market has also gone slow, but since the maximum portion of these transactions are white, developers are still in a better position. 

With a lot of schemes being introduced in the past as well, realty developers are trying to provide stimulus to the market with the new ‘price-guarantee scheme’. While everyone is keen on a real estate investment, developers have shared that the inquiries for projects offering price guarantee schemes have improved over the last few days. Reputed developers like Lodha Group are also offering these schemes, especially in the regions of Delhi NCR and Mumbai. Messages and e-mails like - ‘Waiting for property prices to fall? Lifetime Offer – Book Your Dream Home now. If the rate falls, we pay you the difference, else you gain!’ have been shared by a lot of developers with the clientele.

With money coming to the banks, the interest rates are expected to reduce anywhere between 1% and 2%, making the EMIs go down by 10-15%. Such attractive rates will be a massive boost to all consumers. In addition to it, developers, promoting such schemes want to give customers the confidence that the property prices will not fall down and that is why they are willing to provide a guarantee. As per the schemes, if there is any reduction in the in prices in the next three months, they we will pass on the benefit to them. Showcasing the ‘accountability’ factor of the builder, even the mid-segment builders are promoting the scheme as there is a trust deficit among home buyers.

However, not everybody is enthused by price assurance offers. With the kind of reputation Real Estate has, a lot of buyers take such assurances as just another form of selling their product. The investor confidence is low, all thanks to the fraud that a lot of people face post investing in Real Estate. The trust deficit on builders is one of the prime reasons for the resistance from home buyers on such schemes. The buyers have shared that the builders and developers are in panic mode and thus offering such schemes.

In conclusion, demonetisation and other initiatives like controlling the Benami transactions has handcuffed a lot many illegal deals. We are hopeful that such schemes benefit the buyer and help Real Estate to get rid of its corrupt image. We also advise the buyers and sellers to not overlook the minor details of such schemes. Like industry experts have said, “On real estate, we need to begin to enforce it better”, if the scheme works, it will be win-win situation for all!