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Apartments Are Cheaper. Should You Buy Now?

Anybody with clout who says home prices must drop is met with a lot of cheer and jeer. And when a voice as respected as the RBI Governor Raghuram Rajan makes a statement to that effect, it becomes virtually gospel truth.
 
Last week, Mr Rajan said, "I think we need the market to clear. With growing unsold stock, we need to see the ways to do it". His justification: if prices stay high, demand won't pick up, even if home loan rates are lowered.

I agree that a lot about the real estate sector and home prices in India is scary today. Look at the housing stock that gets created in the biggest employment hubs of India, its top eight cities - 75% of that stock (apartments, mainly) is priced at Rs. 40 lakh plus.
 
And now consider the harsh truth - 90% of India's tax payers earn less than Rs. 5 lakh per annum or Rs. 42,000 per month.  So forget lower income groups, even households at this median income cannot afford to buy a two-bedroom home in any of these top eight metro cities including Pune and Hyderabad. After all, if the family pays an EMI of Rs. 34,000 per month (at 9.7% interest per annum interest for a Rs. 40 lakh home loan), what will it eat?

No wonder the real estate sector is witnessing its worst slowdown in a decade.

There's an absolute demand-supply mismatch of what's out there and who can really buy it. So prices should come down -after all, it's plain economics isn't it?

They should and they have. Everywhere you look, prices are under stress. In heavy investor-driven markets like Gurgaon, Dwarka Expressway to be specific, you can buy from desperate-to-get out investors who made a down payment or signed up for the project two years ago. New project launches which had gone up to a ridiculous price of Rs. 8,000 to 10,000 per square foot in this market have dropped prices by 20-25% over the last two years .
 
Most developers across India are ready to bear the interest cost till project completion in subvention scheme which give an interest holiday to the buyer on his or her home loan. That's an inbuilt discount ranging from 10-20%, depending on the contours of the scheme. And it's happening even in sane and steady markets like Bengaluru. Almost no developer has been able to price apartments higher in any new launches for the past 12 months. Adjusted for inflation, that's a price cut. It's also a double-edged sword for the builder because input and labor costs have gone up.

Yet, this is not enough to revive the market. There is simply too much stock of high-priced homes to sell! Propequity data shows at the end of May 2015, there were 7 lakh unsold housing units in the top 6 metro cities and their suburbs.
 
So something's got to give and here's how I see the next 12 months. Realtors have little room left to slash prices with heavy costs of bank financing, delayed project approvals and graft money needed to grease palms at every stage. Their margins have been reduced to that of a manufacturing business. So overleveraged developers in markets which don't witness a pickup soon will have to start selling part of their stock at a loss to repay their bank loans. That number though, won't add up to more than 10% of the available stock in any given market.

The downright rogue developer with a dismal track record of delivery will face grim days ahead. Buyers are crying bloody murder and social media won't let their misdemeanors be forgotten in a hurry.

The rest, who are trying to make an honest business out of real estate, are responding with two simple strategies - to cut down the size of apartments to bring down the ticket price, and and go slow on new project launches, till the excess supply is bought out. Bengaluru seems to be the smartest. New launches in the city are down 67%  between January to May 2015, compared to the same months in 2013. In other key markets, they are down by 30-50%.
 
So should you wait for prices to fall some more? There's no way to predict the bottoming out of any market, so I'll put it this way. There's no cost of waiting for a few more months, especially if you're an investor looking to buy a second or third property. But if you are buying a home to live and have found one you really like, from a developer with credentials, why wait?  With new project launches drastically coming down along with shrinking sizes, you may not get a similar pick anytime soon.
 
(Data of Property Sales is sourced from Propequity).  

(Manisha Natarajan is Senior Vice President - Corporate Affairs and Senior Editor - Real Estate at NDTV.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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Realty Trends

Home prices near most-affordable levels in over 30 years: HDFC


Home prices may have been on an upward spiral for many years, but the cost of owning a house in India remains near the most affordable level in over three decades, shows data compiled by mortgage giant HDFC Ltd.

The average price of a home, purchased with a housing loan, rose to over Rs. 45 lakh in the 2012-13 fiscal year -- marking the fourth consecutive year of uptrend from about Rs. 25 lakh in the year 2008-09, HDFC has said in a presentation.

However, factors like an even greater surge in the personal income levels, tax incentives and lower interest rates, have resulted into houses becoming more affordable to purchase, it said.

 

 

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India Property Investment Gyan

Major schemes for affordable housing to be modified: Girija Vyas


NEW DELHI: Major schemes meant for providing affordable housing to urban poor will soon be modified to make them more people-friendly, the government said today and invited the private sector to contribute more actively in this area. 

Speaking to reporters here, Housing and Urban Poverty Alleviation (HUPA) ministerGirija Vyas today said her ministry is modifying all the major schemes including the Rajiv Awas Yojana (RAY), Rajiv Rinn Yojana and the, Affordable Housing in Partnership scheme and added enormous budgetary support has been earmarked during the current plan period. 

Secretary HUPA Arun Kumar Misra told reporters that a fund of Rs 35,000 crore had been allocated to the ministry for the implementation of three major schemes, including RAY, which was being run in as a pilot project earlier under 12th five- year plan. 

He said the ministry would require approval from the cabinet for the implementation of these schemes and efforts would be made that through these funds 2 million affordable houses are encouraged. 

He said that in addition to the central government funds, banks and credit institutions would be providing funds for construction of affordable houses. 

Vyas said that with urbanisation, the number of urban homeless and area under slums had grown. 

Vyas said there was a need for private developers to develop economic models to foster affordable housing for economically weaker sections and lower income group households in urban areas as government efforts in this direction needed to be supplemented. 

Vyas also said a technical group, set up by her ministry, had shown that out of 18.78 million housing shortage in the country, 96 percent shortage is in EWS and LIG category and for this huge investments and private sector participation were required. 

Misra said the group set up by the ministry has suggested incentives for the affordable housing sector included concessions to development-related charges and service taxexemptions. 

It also sought direct tax rebates for affordable housing projects and inclusion of the sector in the 'infrastructure facility' he said and added the task force had felt that governments need to still provide direct capital grant support to affordable housing projects. 

Misra said that in the symposium held today where states, experts and private sector representatives were present, there was unanimity on many of the suggestions.

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Green Property- Eco Homes

Reclaim your city space: Projects in Delhi, Mumbai and Kolkata aim to transform lives

 
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