Will India’s residential market follow the “supermarket way” of selling?

February 3, 2016 / By  

Indian consumers are well-versed in shopping for groceries and perishables at supermarkets. For many, this is a convenient and pleasant way to buy without having to bargain over prices and to accept that most products are reasonably priced. However, I would say that most Indians still buy from street-side shops and hawkers, where bargaining is the norm, and that only very few of them believe that such bargaining gives them a better deal. As for me, and those who think like me, bargaining remains a “have to do” task rather than a “love to do” task.

I am tempted to compare the recent selling of residential properties to the selling of groceries, especially those properties in the low-price range. The reason for this is that I see advertisements from developers announcing best prices and limited time offers in much the same way as hypermarkets promote their goods. Some developers also offer on-line purchases of houses at fixed take-it-or-leave-it prices. This approach is new to Indian realty, and one might think that the prolonged period of stagnant sales is the reason for it.

Chart 1: Residential sales and sales rate consolidated for top seven cities[1]


Whatever the case, buyers are not used to such promotions – so will this approach work? Well, it seems to be working for some well-known companies at least. Tata Housing, Godrej Properties and Oberoi Realty received phenomenal responses to their new launches (even when some of these projects were located not in strongholds of these developers) and more and more enquiries are now generated on-line. A conversion rate of 25-30% for those enquiries is not bad either![2] Clearly, a lot of searching for properties is done on-line and more buyers are shortlisting properties based on what they learn from the property websites.[3] Advertising and disclosing full information about projects is clearly helping developers reach out to a bigger audience, but will it help in boosting the confidence and trust of buyers and make them buy more quickly?

This is a chance for buyers to buy without bargaining. To bargain well, buyers must have the right information about a project and about its developer. With a little effort, a buyer can find out how the chosen project is performing by comparing it with other projects in the vicinity but it is next to impossible to find out the developer’s financial situation since very few developers are listed on the stock market.

By offering discounts to buyers, developers hope to save on interest charges and, hence, projects offering discounts are not necessarily inferior or struggling or a reflection of the developer’s financial health. Today, announced prices at project launch – often online – are between 5% and 15% lower than those of other projects under construction, better if not equal to discounts achieved by bargaining.

Often, the seller is better at bargaining than the buyer and gains the advantage. Therefore, buyers should find responding to such offers much easier and less time-wasting. Buyers should of course not compromise on project due diligence and should not decide without visiting the project location. For many, purchasing a house is still a once-in-a-lifetime event involving high stakes. Nonetheless, it is worth exploring this new way of buying real estate.

[1] Delhi National Capital Region, Mumbai, Bangalore, Chennai, Hyderabad, Pune & Kolkata
[2] Business Standard- India, 20 Jan 2016
[3] Snapdeal, a large e-commerce portal has announced Real Estate Shopping Festival (Business Standard- India 20 Jan 2016)

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