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Cut prices and sell inventory, don't count on government support, Piyush Goyal tells builders

real estate | IST

Cut prices and sell inventory, don't count on government support, Piyush Goyal tells builders

A video of Union Commerce and Industry Minister Piyush Goyal urging real estate developers to “reduce rates”, “get rid” of inventory and not be stubborn about holding onto prices, has been doing the rounds on social media. The video is from a NAREDCO-organized webinar held earlier today, where Goyal was addressing builders supposedly on the bleak economic scenario facing the property market.
“I would put myself in soup... But unless you reduce your rates, you are stuck with material. You can choose to be stuck with your material and default in the bank till the material goes away. Or you can choose to get rid of whatever you bought at high prices, look at it as a bad decision or an unfortunate situation and move forward,” says Goyal in the 84-second clip reportedly recorded by a developer attending the webinar.
Seen on screen are A-grade developers like Hiranandani Group Co-founder and Managing Director Niranjan Hiranandani, Supertech Managing Director Mohit Arora, former NAREDCO President Rajan Bandelkar and a digital plaque bearing Signature Global Chairman, Pradeep Aggarwal’s name, among others.
Markets won’t improve anytime soon: Goyal
Goyal adds that he believes the property market isn’t going to improve anytime soon and that he believes a developer’s best bet is to sell inventory. “If any of you here feels that the government will be able to finance in such a way that you can hold longer and wait for the market to improve, the market is not improving in a hurry,” says Goyal, “Things are seriously stressed, and your best bet is (to) sell.”
The minister then goes on to observe how those developers who were quick to sell off inventory have “survived the downturn”, while “those who are saddled with large loans, who kept holding on to their price have suffered.”
‘Can’t sell any lower’
CNBC-TV18 got in touch with NAREDCO President Niranjan Hiranandani, also the co-founder and managing director of the Hiranandani Group, to verify the authenticity of the video, and to provide context on Goyal’s comments.
“What the minister was saying was that while on one side developers are taking loans, on the other hand, they are continuing to hold properties,” said Hiranandani, “That was the context of the statement he made, but it is possible that it could be read in any way.”
Goyal’s comments aside, Hiranandani also pointed out that any talk of price reduction can only happen when the government reduces existing circle rates. “The fact is you can’t reduce prices any more, and you can’t reduce prices more because of Section 43 C (A) of the Income Tax Act prohibits reducing rate below prevailing circle rates,” said Hiranandani.
According to the law, if a home is sold below prevailing circle rates or ready reckoner rates, both the buyer and developer will have to pay 30 percent of the difference in the selling price and the circle rate. “And that is why we have been asking the government for a change to existing circle rates,” Hiranandani added.
The curious case of circle rates
A cut in ready reckoner or circle rates has been a long-pending demand of the real estate industry in the quest to spur demand. Ashok Mohanani, President-Elect of NAREDCO Maharashtra recently wrote a piece on CNBC-TV18.com on why a ready reckoner rate cut was the need of the hour.
Extremely high circle rates (like those prevailing in South Mumbai, for instance) do not give developers any room to be competitive with price and give prospective buyers reason to invest. This is largely because IT laws do not allow developers to sell below the prevailing circle rate.
While urging developers to sell at reduced prices, Goyal stopped short of assuring developers that there would indeed be a cut in these rates. “We are trying for there to be a concession in the ready reckoner, but even if it’s not there, you will have to sell,” he says at the beginning of the video, before attempting to convince developers of the need to slash prices and sell.
Parekh's forecast
In April, HDFC Chairman  Deepak Parekh had said that real estate prices could correct by as much as 20 percent in the near future.
“I think the prices of real estate have to come down and will come down. I believe NAREDCO’s estimate is between 10-15 per cent. I feel one must be prepared for even 20 per cent,” Parekh had said while addressing representatives from the real estate sector through a video conferencing. The event had been organised by real estate developers associations NAREDCO and CREDAI.
Parekh had said then that developers were holding on their inventory in the hope that prices would recover sooner than later.
Two days later, members of CREDAI and NAREDCO in the Delhi-NCR belt publicly disagreed with Parekh's views saying that developers had limited room for slashing rates as property prices were already low and that labour and raw material prices were expected to rise after the lockdown.
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