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Dilemma of right time to buy house

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Bottom Line: Beyond the budget, location or interest rate what is always paramount in the minds of house buyers is whether this is the right time to buy. This never-ending debate has its genesis due to contrasting market dynamics of quick appreciation and possible price correction. 

Homebuyer, Home Finance, Indian property market, Indian housing reforms, Property market regulations, Real estate understanding, Real Estate tips, Real estate guide, Track2Media Research Pvt Ltd, Track2Realty, Homebuyers Knowledge, NRI Investors, NRI investment patternReports of price correction, more often than not, seem to conceal more than it reveal on the pulse of the property barometer. The answer as to whether this is the right time to buy is not a simple yes or no, but it depends on a number of factors like whether a buyer is looking for first or second house, for living or investment, if investment then it is for the long run or short run etc.

If the fundamentals are strong like clear titles, area where growth is expected etc and the price correction has already happened, then one may opt for buying. And before buying a home of course one must check the fundamentals like price rationality, down payment and EMI options that suit your budget, the legal are in order etc.

All realty experts agree that the days of speculation are over, at least for the next few years. And thus it is a good time to buy a home only if it is for self-use. Actually the property price is determined by the fundamental indicator of demand and supply added with civic amenities and growth potential of the geographical region.

The demand in the market had skyrocketed when the economy was doing well, new jobs were being created and salaries were going up. The emergence of the suburban housing market gave people an opportunity to buy cheap and mortgage loans were available at lower prices. The economic downturn, however, taught a tough lesson to those who had over stretched themselves with the EMIs. Now even when economic growth is consolidating, consumer behavior borne out of crisis of confidence will be moderate for the next few years.

The question in minds of home seekers is whether waiting for the price correction is the right strategy. Anshul Jain, Managing Director of Cushman & Wakefield India believes the residential real estate market across the country has largely recovered from the slumps seen in 2008-09, and the market has grown sharply over the past three years. However, a sense of caution in economic environment coupled with high inflation levels and home loan interest rates have resulted in many end users to postpone their purchase decision. This was also due to the moderate growth in salary growth expected during the year.

“The benchmark interest rates may have already peaked and may come down further in the coming months. Along with this, the economic growth is projected to recover some of the lost momentum in the second half of 2013. Because of this, the prices are unlikely to decline from the current levels. The current expectations are that moderate price increase in the 10-15 per cent range, but would depend on the supply-demand dynamics of the specific sub-markets. The demand is expected to strengthen further in the mid-price range across all cities. Unless there are compelling reasons, buying a home is viewed as a good long term strategy and hence waiting may not necessarily yield any advantages,” says Jain.

Analysts believe that further price correction may not happen in the metros and suburbs due to the holding capacity of the bigger developers, but lack of funding options may force some standalone local builders to drop prices. While the metro and suburbs property prices seem to have stabilized after correction of around 10-35 per cent, speculators would like to exit the B and C Grade cities fearing the end of high appreciation.

Devang Varma, Director, Omkar Realtors & Developers also asserts that waiting for the price correction is not a very intelligent strategy considering the fact that the trend has always been inclined towards rising property prices. Developers are more likely to be competitive with their rates but would not resort to discounting as the construction and overhead costs have been growing at much the same pace as property prices in the recent past.

“Home buyers’ awareness in India in the wake of recent consumer activism is high. When it comes to real estate, there is a wealth of information available so that buyers can make informed choices. Real estate forums and portals allow for consumer feedback which adds tremendous value to our research. The Indian consumer is astute and we respect that,” says Varma.

Realty companies assert that the prices have reached the rock bottom in the last few years and rising input cost makes it all the more difficult to offer more price cut. Nikhil Hawelia, Managing Director of Hawelia Group says, “In a demand-supply mismatch where you have more buyers seeking home than the market can supply, the market has to go up unless there is a case of more land being released, and I don’t see such a situation in the immediate future. The fact of the matter is that even in the recession hit market in the FY 2008-09, DLF managed to sell more than 8,000 flats. That is the best yardstick to judge whether it is the right time to buy property.”

Along with the question of whether the right time to buy property comes the question of where to buy? Areas where infrastructure is being developed are the better bet and the best option would be to look at ready-to-move-in properties as they are the least risky. Some trade analysts believe the property market may bounce back in the next 3-5 years and prices will recover.

However, most of the realty experts suggest there will not be another 200-300 per cent increase. A case study in point here is Mumbai where property brokers assert that the prices of apartments have started moving up because of revival in demand. As the city does not have much supply, a slight recovery has already pushed prices up in posh areas by 10-20 per cent.

The debate as to whether this is the right time to buy a property is endless since market sentiments is something that no analyst can gauge perfectly. However, the era of too fast capital appreciation in real estate, in some cases by 300 per cent, signaling a lot of liquidity and speculation in the sector seems to be over. While that may not be good news for the builders, for the common man on a house hunt it could be a blessing in disguise. The only rider here is the high interest rate.

Budget compensation for demonetisation hit realty

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Bottom Line: Can the expected budget bonanza compensate the demonetisation hit Indian real estate market?

India Budget, India Finance Minister, Indian Fiscal Policy, India Monetary Policy, Union Budget 2014-15, India real estate news, Indian realty news, India property market, Track2Media Research, Track2Realty“The sector has suffered badly due to the demoentisation and our business have been forced to go through the worst cycle. The recent interest rate cut promises that the government might give some extra sops to the home buyers but my concern is about the larger interests of the business. Can the government compensate the real estate business that has been hit due to demonetisation with a home buyer friendly budget,” questions a developer in Gurgaon while requesting anonymity.

This is not something that only this developer is asking. As a matter of fact, within the built environment of Indian real estate a large section of analysts privately admit that the demonetisation has done more damage to the real estate business than even the Lehman crisis. Some call it home-grown Lehman crisis while others term it as self-inflicted money trap.

The larger issue today is: Can the Union Budget 2017-18 change the market dynamics? Can some interest reduction and other sops uplift the home buyers’ mood and market simultaneously. The opinion is divided but what can be vouchsafed is the fact that budget is being presented immediately after hard hit on the realty sector with demonetization. It is hence being seen as either a budget with major relief or more tough days ahead.

Demonetization hit real estate & budget expectations

  • Demonetisation has hurt the Indian economy in general and real estate in particular a big way
  • Some call it home-grown Lehman crisis while others term it as self-inflicted money trap
  • The housing sales have come to a standstill and new launches have stopped
  • The rate cut has thus far not shown any sign of increased market transactions
  • The Union Budget can at best reduce interest rate and encourage home buying, but the ground realities of economy and job market discouraging 

Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group maintains that the real estate sector has always been upbeat with the upcoming budget and this time too one is optimistic about the future. Real estate contributes 12% to the GDP, second largest after agriculture. Real estate supports more than 150 ancillary industries. So, any challenge to real estate is challenge to the economy and any opportunity for real estate is an opportunity for the economy.

“2017 is a year of positive reforms. This year we will see the after effects of demonetisation – an axe to cut out black money, RERA – real estate regulatory being formed – a watch dog, GST being introduced – tax simplified and finally the implementation of the new development plans – a well planned city. All of these leading to more transparency, reliability, timely development and thus benefiting the consumers at large,” says Hateria.

Parth Mehta, Managing Director, Paradigm Realty categorically says that demonetization has impacted sales in real estate sector. He demands that there should be some measures in the upcoming budget, for example cut in the tax rates for middle income groups which will lay extra money in people’s hands. “Also, stamp duty reduction can give some breather. Several government approvals should be executed appropriately. Single window clearance has to be introduced.”

Vivek Mohanani, Joint Managing Director of Ekta World admits that post the announcement of demonetization, the real estate sector has seen a temporary hit. However, these changes are surely in the larger interest of the sector and its customers. It will bring about more transparency in the sector. The upcoming Union Budget announcement is expected to bring cheer to both buyers and developers.

“The real estate prices are predicted to increase marginally, as with demonetization in place, stringent rules & regulations are to follow the realty sector in the year 2017 which will give a raise to the sector. There is also a high possibility of the execution of GST in the budget 2017-18, which will relieve the buyers from paying multiple taxes, in turn boosting the purchase of properties,” says Mohanani.

Analysts suggest that with Interest rates coming down sharply at the very beginning of 2017, the demand for end use home buying will not only revive but also catch steam over quarters of 2017. Reduction in interest rates not only reduces interest cost but also increases affordability. The budget should hence focus more on the end user home buyers.

The moot point, however, still remains unanswered as no one would like to address it on record. The state of Indian economy does not allow the Union Budget to compensate the real estate sector for the hit that it has taken with the demonetization. The long term reforms are only projections as of now, and the short term losses can hardly be compensated with the Union Budget 2017-18. The developers nevertheless are living with hope and prayer.

By: Ravi Sinha