Property developers in India are offering discounted mortgages and pauses on loan repayments to attract buyers for apartments and soften the blow of higher interest rates.
The sweeteners coincide with the Dussehra and Diwali Hindu festival season, when it's considered auspicious to buy property. While giving some incentives to potential buyers during the period that runs until early November is normal, this year's enticements have surpassed the usual offerings.
Tata Housing, an arm of the conglomerate Tata Group, is offering a 12 month flat interest rate of 3.5 per cent across its projects in seven cities, including Delhi, Mumbai and Goa, while Lodha Group, one of India's biggest property companies, has locked in interest rates at 6.99 per cent until 2024. Both are lower than market rates for home loans, which are more than 8 per cent. Meanwhile, Mumbai-based developer Runwal Group has offered a one-year pause on mortgage payments.
Developers are hoping this year's enhanced incentives will offset the impact of recent interest rate rises to attract would-be homebuyers and maintain momentum during the crucial festival sales period.
"Developers are conscious about the inflationary pressure building up with the spiralling economic discord and will chalk out deal sweeteners on the back of festive tailwinds," said Niranjan Hiranandani, vice-chairman of the National Real Estate Development Council.
India, like many nations around the world, experienced a pandemic property boom as decade-low interest rates propelled people to buy homes and resulted in a strong rebound in house sale volumes. But the market has recently started to show signs of softening in response to nation's central bank tightening monetary policy to tame inflation.
The Reserve Bank of India raised the key interest rate by half a percentage point to 5.4 per cent last month - its third consecutive hike, taking its cumulative tightening since May to 1.4 percentage points. House sale volumes in the largest nine cities declined 7 per cent in the second quarter compared with the previous three months, according to online real estate analytics platform PropEquity. On an annual basis, volumes are still up 96 per cent.
Sweeteners are also being used in other nations as property markets cool. Builders across the US are suddenly finding themselves with a glut of unsold homes, leading them to slash prices as homes near completion and offer deal sweeteners such as mortgage rate buy-downs so they don't sit empty. Builder DR Horton said in July that it expects to offer more buyer incentives in the current quarter, while Toll Brothers, the largest US luxury-home builder, last week said it has increased buyer enticements to help navigate a slowdown in demand. In London, apartment developers often use cash discounts and interior design packages to entice buyers.
Still, in India there is optimism from developers and analysts that pent-up demand and growing household incomes will continue to buoy the market.
While sales have recently slowed, house prices continue to rise, with average residential prices across the top eight cities increasing 5 per cent in the second quarter from a year earlier. The biggest increase was in the National Capital Region, where New Delhi is located, where prices rose 10 per cent, according to an August report by the Confederation of Real Estate Developers Associations of India and property consultancies Liases Foras and Colliers.
"Rising mortgage rates do appear to pose near-term challenges to this demand momentum," said Rajiv Singh, chairman of India's largest listed developer DLF Ltd. "However, we do not anticipate any significant material adverse effect given the demand in our sector as well as the inherent strength of the Indian economy." BLOOMBERG