Union Railways and Commerce Minister Piyush Goyal has reportedly asked builders to cut prices and clear unsold inventory by “selling at any price they get now, as things were not going to improve in a hurry”.
Mr. Goyal was speaking at a closed-door online meeting organised by builders’ body National Real Estate Development Council (NAREDCO).
He is heard saying in a video reportedly taken at the meeting, which has gone viral:“We are trying to see if some concessions can be allowed. If you don’t get [concessions] then you have to sell [the unsold apartments]. The rest is up to you. I cannot be more explicit about it.” The Minister is seen saying that contrary to expectations, the government was not going to provide a financial helpline that would enable builders to hold their inventory and then sell at higher prices, when the market improved.
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“Unless you reduce your rates, you are stuck with your material. You can choose to be stuck with your material and default with the bank and let the material go away, or you can choose to get rid of whatever you bought at high prices. You can think it as a bad decision or an unfortunate situation and move forward,” the Minister is seen saying in the video.
He was addressing a battery of real estate tycoons, including developer Niranjan Hiranandani, national president of NAREDCO.
Asking builders to be pragmatic, the Minister is heard saying in the video, “If any of you feel that the government will be able to finance you in such a way that you can hold longer and wait for the market to improve, the market is not improving in a hurry. Things are seriously stressed and your best bet is to sell.”
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Mr. Goyal also says, “Those who have sold and are less leveraged or got rid of their bank loans have survived this downturn. Those who are saddled with large loans, who kept holding on to their prices, have suffered.”
Commenting on the remarks, Mr. Hiranandani told The Hindu , “We must compliment Mr. Goyal for saying this. Even Mr. Deepak Parekh [Chairman, HDFC Bank] and Mr. Uday Kotak [President, Confederation of Indian Industry] have said this. It is for the people [builders] who have borrowed money from banks and sitting with the stock [of unsold real estate]. This advice is not for all developers.”
Mr. Hiranandani said the provisions of the Income Tax Act are such that any sharp reduction in prices would attract heavy penalties for both the seller and the buyer. “As per the Section 43CA of the Income Tax Act, anyone selling below 10% of the ready reckoner rate or circle rate will be liable to pay a penalty of 35% of the difference [between the original and revised price]. The buyer will also pay a penalty of 35%. So, unless this Section is amended, no further price cut is possible because people have already cut prices by 10% in a year. So, we have requested Mr. Goyal to tell the Finance Minister to amend the provision.”
Shishir Baijal, chairman & MD of real estate consultancy firm Knight Frank India remarked, “Developers are already dealing with mounting concerns over unsold inventory and liquidity. Most developers are struggling to maintain their margins and may not have too much leeway to cut prices further. At some level, the suggestion by the Minister to developers to lower prices is valid as it may help reducing inventory, though it may not be the most viable [option].”
The crux of the problem lies in dwindling demand that the sector has been experiencing for the last few years, he said. “Therefore, the main solution will be in creating stable long-term demand by providing adequate boost to economic growth and stability. Any movement on ready reckoner rates, stamp duties and taxes will come as a further relief to help converting latent housing demand to sales. The real estate sector thus needs tangible measures to resurrect demand and ease the concerns of its stakeholders,” Mr. Baijal said.