Sumanta Rudra, head of infrastructure and administration at VFS Global, has decided to defer buying a property. "I am expecting a correction in property prices. I will only take a call about buying after the elections."
With the festival season coming, there will be a plethora of advertisements in newspapers and your email boxes will be flooded with promotional mailers goading you to buy property with catchy lines such as "Buy before property prices go up further", "Get the best discount," etc.
However, many like Rudra are unwilling to get carried away. They feel deferring the decision will work in their favour. Of course, there are other issues. As a banker says, "Given the tough economic conditions, most people are unwilling to part with liquidity. So, even if there are great deals, the feeling is "let's wait for some more time". Add to that the Reserve Bank of India's (RBI) red flagging of the 20:80 schemes due to fears of default from builder and people are unwilling to commit, at least for the time being.
It is not that corrections haven't taken place. Prospective buyers are offered teaser price cuts of 5-10 per cent in Mumbai and Delhi and slightly over 10-15 per cent in other cities.
For example, in February 2012, a four-bedroom flat in Jolly Maker 1 at Cuffe Parade, one of Mumbai's most expensive residential areas, was sold for Rs 29 crore. The transaction was reported widely as the highest-ever price for a residential apartment. Today, a similar flat in the same building will not fetch more than Rs 24-26 crore.
According to National Housing Bank's Residex, an index for property prices, property prices at Cuffe Parade and Malabar Hill of South Mumbai have fallen by almost nine per cent in April-June 2013 compared to January-March 2013. Even for Mumbai as a whole, the Residex shows a slight dip in prices. The trend is similar in 24 out of the 26 cities for which the National Housing Bank provides data.
In order to sell, some builders are giving free car parking and/or bearing the stamp duty and registration. "However, no builder will admit to it since it will send out distress signals to other potential customers," points out Om Ahuja, CEO-Residential Services, Jones Lang LaSalle, India.
The question, for the likes of Rudra, is whether it will fall further. V K Sharma, managing director and CEO of LIC Housing Finance, feels if you are buying property for investment, then you should wait for some time. "A major appreciation in prices from the current levels looks difficult. If you are not in urgent need, then it is better to hold your buying decision for now," he says.
If you are looking at buying your first property and, more important, one in which you intend to stay, the traditional answer is: Don't look at prices. The answer stays the same, but with a caveat - prices are unlikely to run away in the near future, so delaying the decision is unlikely to hurt substantially. If you want to buy now, ask for discounts. Faced with oversupply, developers will be more than willing if they are convinced you are a serious buyer.
Little appreciation in the near future
The real estate sector has been in trouble for some time. However, prices have been resilient because builders have received funding from potential buyers (through home loans), private equity and investors. Meanwhile, builders have launched projects, which are yet to be sold. In Mumbai itself, some 10 million-plus flats priced at over Rs 1 crore are said to be lying unsold.
Meanwhile, new projects have been launched even as existing projects haven't sold out completely. Obviously, capital appreciation is not something most experts expect. Anand Moorthy, head (real estate services) at RBS Financial Services, says there is humongous supply in most residential areas, even in the secondary market. Investors should not expect more than five-to-eight per cent growth in prices in most cities for the coming one-two year horizon for realistic gains. Another reason to wait, especially for investors, is because real estate is not liquid.
Anuj Nangpal, managing director (investor services ) at DTZ India, says: "The anticipated downward pressure on prices is expected to prevail in the short-term owing to significant inventory overhand across most micro markets. Additionally, the recent hike in home loan interest rates along with continued slowdown in economic environment has further dampened sentiments amongst prospective end users. The consequent drop in demand has further limited any opportunity for price appreciation in near future," he says.
Is this a buyer's market?
Some feel that buyers are on a stronger wicket. Lalit Jain, chairman of the Confederation of Real Estate Developers Associations of India, says: "Our costs have increased substantially. In fact, we have sent an advisory to our members saying they can sell at the lowest prices due to the liquidity crunch. What customers are getting today is the best price and at the first possible trigger, at the first signs of economic situation improving, prices will go up. Developers are giving good bargains even to individual buyers."
There are some things that will work in your favour while bargaining. While those looking to buy should bargain for good rates, they should not hope for the developer to offer it to them. "There is very high probability that you can get discounts. In a market like Mumbai, a discount of even five per cent is good. In other markets, you can get 10-15 per cent or even 20 per cent," says Sanjay Dutt, executive managing director (south Asia) of Cushman & Wakefield. Buyers with pre-approved home loans in hand are in a position to bargain for a better price. In fact, simple things such as going with your family members and with a cheque book to make the downpayment will show you are a serious buyer and ensure good discounts.
Since October-January is considered an auspicious time to buy property, this is when builders offer discounts on the price or give benefits such as stamp duty waiver or freebies such as kitchen cabinet or air-conditioners in the house. So, if your builder is not offering any of these facilities, you can bargain and ask him to reduce the price to that extent.
If you are looking to buy a property in a premium project, going with an up-front payment will ensure you get discounts. The retail market is largely broker-driven. So if you approach the builder directly, you can straightway ask for a two per cent discount on the price. You can also ask to include the loading and ask the builder for a discount. Loading is the carpet area (the actual usable area of the house) minus the super built-up area (non-habitable area such as staircase, veranda etc). In Mumbai, Thane and Pune, the loading is 40-50 per cent; in Chennai, Bangalore and Hyderabad it is about 30-35 per cent, while in Gurgaon it is 35-40 per cent.
"Compare carpet loading factor and amenities cost. Builders have a decent spread and now they are willing to sacrifice some of it," says Moorthy of RBS Financial Services.
According to Dutt, the good time to invest in real estate is between now and March 2014, the festival period starting with Ganesh Chathurthi and ending with Gudi Padwa. There is also a good chance of getting attractive deals in land and residential apartments because of the market conditions, with lower sales and new supply hitting the market.
"Once the general elections are over and there is some political and economic stability, the window of opportunity will be over," says Dutt.
In fact, with harder rules on project approvals, land acquisition and taxation on property coming in, developers will have to raise prices to stay relevant in the market and solvent in their businesses. However, there are enough existing projects and inventory with many builders, which will have to be cleared before the impact of the Land Acquisition Bill comes into play.