Homing In

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Homing In
Vishav - 02 November 2020

It’s as easy to ask the question as it is for a child to sketch a dream house in her sketchbook, with clouds and a tree next to it. Is this a good time for you to buy your own dream house? The question has been with you for a while. Let’s say you had recently, maybe a year or two ago, at last reached a point in your life when you could finally afford one—that is, foresee being able to pay out a loan in a stable, predictable manner. Or you are at another phase in life, and looking to add some more concrete to your long-term investments. In either case, you were biding your time. So should you go for it? It’s an instinctual question in times such as these: the economy is in a trough, and prices are low. Common sense should tell you this is a buyer’s market. But the fine print of life can always hold surprises, so let’s carefully examine the pros and cons.

First, the reasons to answer with a yes. Housing prices have indeed been on a downward swing, and that trend was on even before the pandemic struck. Data from the Reserve Bank of India (RBI) tells us home prices had declined around 1 per cent during January-March, compared to previous quarter. Post-Covid, there was a drastic dip, and then a correction that still left prices significantly lower. And reports predict a further fall, though the jury is out on that. Plus, there exist two related facts of direct relevance: one, interest rates too have come down and efforts are being made by RBI to ensure the benefits of rate cuts are passed on to homebuyers; and two, there’s no dearth of unsold inventory. So there’s both choice and capacity for end-users and investors. That should make it a buyer’s market with a good possibility for better price negotiation?

Additionally, one glance at the sellers may tell us they are in some distress. In India, housing has been in a crisis for some time now—the never-before-seen, near-unnatural boom period of the nineties, when prices trebled and quadrupled menacingly, is way behind us. A severe liquidity crunch gave us the spectacle of half-completed projects and unsold inventories. Forlorn, empty towers, some with the scaffolding on for months and years, dotted our urban landscapes. Recall that this was the sector that brought even the US down to its knees with the subprime crisis of 2008; the subsequent global recession washed over all of us. (In a real sense, we are still not out of that slump.) That has meant a decade-long crisis for the realty sector, which further fed into a larger vicious cycle. The challenges it has been grappling persist despite government intervention: the liquidity crunch never really ebbed, and unsold property is still lying idle after years. As if that was not enough, the pandemic came, bringing in the real ravages. Everything came to a complete standstill with the lockdown. The labourers went home, construction activity went into a long pause, most new projects are delayed….

Shouldn’t all of this spur you, the first-time buyer or the thoughtful investor, into action? Well, care and caution should be your watchword. It would be folly to think of this season as a distress sale. To begin with, big realtors are among the canniest, most dogged operators with real staying power…they typically wait out a trough without lowering prices. Not to speak of the more unscrupulous players: think back to those scenarios where buyers, famously, had to move courts for justice.

Says Vikram Chari, Founder and CEO of Smart Owner, “Most buyers face lack of transparency in pricing. Instead of the price being dependent on the unit one chooses, it is a factor of one’s ability to haggle. It is important for the buyer to look for good developers who offer fairness and transparency. A few may also offer a price protection plan, safeguarding the buyer from price fluctuations. This could save the buyer time and energy, knowing that others are getting the same price.”

Any bit of haziness can land you in a limbo. Sameer Tikoo, an IT professional, bought a home for his family last year in Greater Noida. Despite buying a ready-to-move-in flat, he recalls, it took almost a year for him to get possession, after a long-drawn fight with the builder. He was lucky. Thousands have failed to get possession of their flats years after the committed date of completion. “Thankfully, I had some friends who had bought homes recently. They guided me. Otherwise, it’s really difficult for a first-time buyer,” he agrees.

What To Watch out For?

So what must a first-timer do? Experts say one can minimise risk and get the best deal with due diligence. A couple of key points must always be kept in mind while embarking on this journey, says Chari.

  • Most important, if you can, choose a ready-to-move-in home over an under-construction one to avoid cases like that of Amrapali, where buyers are awaiting delivery after over a decade of booking. Ensure the completion and occupation certificates are in place.
  • In all cases, go for a developer reputed for quality construction and timely delivery.
  • Stick to RERA-registered projects. Being under the sanction of the Real Estate (Regulation And Development) Act 2016 will ensure the project is within the jurisdiction of the appropriate state regulatory body.
  • Even so, make sure you read the agreement carefully, focusing on the deliverables and completion timeline.

Besides giving yourself those buffers of safety, carefully evaluate the floor plans to suit your family’s size and ensure the home is adequate for the future. You must of course prioritise a location convenient in terms of proximity to office, school et al, with good social infrastructure. The pandemic has shown us that facilities like parks, sports arenas and jogging tracks within the residential complex are crucial. But just their presence is not enough: check their per capita availability so that they can be used well during weekends. According to Manju Yagnik, Vice Chairperson of Nahar Group, and Vice-President, NAREDCO (Maharashtra), this is the right time to invest in real estate as all the factors are working in favour of the buyer. “Homebuyers can take advantage of stamp duty cuts in some states, and home loan rates are available for as low as 6.9 per cent, with discounts, offers, incentives and flexible payment plans,” she says. In the last five years, property prices did not fall drastically but remained flattish, says Sudhir Pai, CEO, MagicBricks. “However, COVID brought an immediate price decline of 9 per cent. The price drop improved to 5.2 per cent during the April-June quarter. Adjusted for inflation, this has resulted in a time-factor price correction in residential real estate,” he adds.

The situation, Pai says, has prompted developers to offer easy payment plans like no EMI till possession, reduced down payments (as in a 10:90 plan, where the buyer pays only 10 per cent in advance and 90 per cent during possession), and a refundable deposit in case of cancellations. He advises homebuyers to carefully understand the obligations and the terms and conditions of each of such offers. Also, they must try to find out till what juncture the developer will fund the EMIs and under what circumstances would the payment be transferred to the buyer. “Homebuyers must try to find out if they are being charged extra and whether these extra charges are being used to fund the payment plan. It is advisable to opt for ready-to-move-in properties and that too from reputed developers, (or ensure they) intend to complete the project. Homebuyers shouldn’t be lured by a scheme in a project that has low chances of completion,” he explains.

Amit Jain, MD of Mahagun Group, also advises buyers to exercise caution to avoid falling into the trap of bad deals. He alerts buyers to be extra cautious as even stuck projects could come to market to sell so as to take advantage of any spurt of interest from homebuyers. “The buyer has to ensure the developer has the wherewithal to complete the project. Many small-time developers will try to ride the offer bandwagon…a buyer has to keep his interests paramount without falling for the bait,” he cautions.

The pandemic has not only highlighted the importance of owning a home, but has also raised the demand for well-managed amenities that enable holistic living, either in a self-sufficient manner or with easy accessibility. According to Yagnik, demand for homes should be guided by location advantages: shopping, entertainment hubs, educational institutions, healthcare facilities, and access to arterial roads and freeways for a quick getaway. “Integrated townships provide good hotspots for dining, shopping, supermarkets and sport facilities,” she says.

Will Prices Fall Further?

That’s a tough one. Experts have a mixed opinion on whether the post-pandemic phase will see the trend continuing. Commerce and Industry Minister Piyush Goyal has advised developers to start selling idle property at low prices “since waiting for the market to improve would be futile.” Some estimates predict average house prices to shrink by up to 6 per cent this year and 3 per cent next year. However, many call this an exaggeration and dismiss any such correction. Pai says while there may not be a major price correction, oversupply means it will remain a buyer’s market until the inventory overhang is solved.

Many disagree with reports on further price falls. Ashok Gupta, CMD of Ajnara India, in fact, predicts the opposite. “With demand on the rise and project costs increasing, we can say that very soon there will be an increase in prices. Though the developer community is not in favour of price rise, the cost they are bearing needs to be transferred on to the customers sooner or later,” he says. Indeed, data from MagicBricks PropIndex suggests some cities have started seeing modest price increments. Hyderabad, for example, posted a 2 per cent price increment in the July-September quarter. The company’s CEO says signs of recovery are becoming visible with property searches up by 30 to 40 per cent as compared to pre-COVID levels. In between, in that shock-and-awe month of April, searches had fallen by almost 50 per cent before reaching pre-COVID levels in June.

Either way, this is not a bad time per se. Says Pai, “There are very good deals available for buyers, especially for those able to demonstrate serious transaction intent. The softening of interest rates, now at an all-time low, along with promotional schemes and government subsidies are expected to increase the volume of transactions. This is expected to take some pressure off both buyers and sellers, but it would largely remain a buyer’s market for the foreseeable future.”

According to Chari, during the initial period of the lockdown, potential buyers were unable to go for site visits, which brought down the transaction numbers across markets. However, he feels the real estate industry in India is not monolithic and different locations experience varied outcomes. “While buyers may take time to become comfortable to resume site visits, most leading developers are wooing buyers with video tours and virtual views that can be experienced from the safety of one’s home. In addition, buyers may find flexible payment plans on offer to suit their cash flows and incomes. In short, the coming few months may be an excellent time for serious buyers to conclude their home purchase—a significant milestone in one’s life,” he says.

Which Way is Home?

The housing market has endured various setbacks over the last few years: demonetisation, the NBFC liquidity crisis, delivery delays, supply-demand mismatch. The pandemic, ironically, seems to have come as a positive inflection point—even if it initially dampened spirits all around. “Post lockdown, the demand has started to return slowly on the back of flexible payment plans, reduced interest rates, and some discounting,” says Shveta Jain, MD, Residential Services, Savills India.

Overall, consumer preference seems to be shifting towards affordable and mid-segment properties. Moreover, segments like co-living have shown promise. “With affordable housing as the key focus segment for buyers, peripheral regions are also picking up pace. With reduced budgets, homebuyers are now looking for large-sized houses in such locations. This trend is prominent in markets like Bangalore, Hyderabad and Chennai. There is also a 50 per cent rise in searches in small towns as more working professionals wish to own a property in their hometowns. We are also witnessing a recovery in plots and NRI demand in Tier 2 and 3 cities, which was largely un-impacted and is performing better,” Pai says. Slowly but surely, that childhood sketch is taking shape.



The Buyer’s Checklist

  • Research potential options; compare prices across localities and projects
  • Take digital tours with 360-degree view; no need to visit multiple sites
  • Opt for reputed developers with quality construction and timely delivery
  • Book properties with completed legal formalities
  • It is a buyer’s market; don’t hesitate to demand freebies like club membership, parking, preferred floor
  • Play your cards well; ask for discounts even from unwilling builders
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