RIGHT TIME OR RIGHT PRICE
The big wait is on. Buyers are all waiting for the lowest point in the real estate cycle where prices bottom out, enabling them to get an attractive deal. Namrata Kohli reports
To buy or not to buy has been the question. There are genuine buyers in the waiting but they are playing a cautious wit-and-watch game, hoping prices will rationalize themselves.
Gagan Gulati, a housewife, says: We have wanted to buy for the last eight to nine months. First, the values were prohibitive as the flat where we are staying on rent in Dwarka was a 3+1 unit, up for sale for Rs 92 lakh. However, the same flat is now available for Rs 86 lakh. We are hopeful that the values will correct further and it should be an affordable proposition for us to buy them within Delhi. We are quite fed up of waiting but as every penny counts, sanity lies in waiting, for the time being.
There was a time when it was an investors market and the end users had got elbowed out of the market what with values reaching unrealistic levels. Now, with market dynamics changing, developers have started lowering prices but values still haven’t reached attractive levels for end users. Hence, further reductions are needed in the interest of completing projects which are in various stages of construction.
The values have dipped but the buying activity has not picked up as popular perception is that values will fall further. There has been sufficient competition in the market amongst developers, with respect to pricing, says S C Jaisimha, Managing Director of Asia Pac International India. Everyday, we have been witnessing developers dropping prices in their ongoing projects and new project launch being launched at corrected price levels. There are new sectors which have come up on account of the new master lanes (in many Tier I cities), which has increased the availability. Jaisimha adds that supply has overtaken demand by almost 200%. Today's mantra for developers is liquidity and cash flows for early and timely completion of projects with reasonable margins, rather than looking at a long horizon for better margins So, in many pockets, we have already witnessed prices generally dropping in the region of 25-30% and in some exceptional cases, close to 50%. With this, we believe the prices have dropped to reasonable levels, which has prompted some genuine buyers to scout for properties of their choice and budgets. Having said this, there is still a perception in the market that the pricing has not bottomed out. So for the time being, it is a wait-and-watch scenario for most of them.
There has been a significant drop in transaction volumes with high interest cost on loans, which has been prevailing free over a year now, also being a reason. But slowly and steadily, this is also coming down, which would generate demand in the medium to long term.
So, what has been the drop in transaction volumes? According to Vivek Dahiya, director of occupational and development markets at DTZ: There was a significant drop in transaction volume in Q4 of CY 2008. Some brokerage firms focusing on residential transactions oly saw volumes come down by 50%-70%.
Today, ready-to-move-in apartments are really selling, albeit with low premiums compared to projects under constriction. The new projects with realistic pricing have attracted genuine buyers.
Significantly, the direction in which demand is moving and the supply is following suit, suits the mid-end housing. Jaisimha says: The hot market today is the middlemen or the affordable housing in a budget range of Rs 20 to 30 lakhs for a decent 2-bedroom accommodation. Some developers visualized the importance of this and have already made inroads into this category. So, today you see various leading builders like DLF and Unitech announcing schemes for affordable housing. The recent response to allotment of flats by DDA is a classic example of genuine buyers waiting to buy at reasonable and realistic pricing nearly 8 lakh applications for just 5000 flats says everything.
The big question is when will real estate prices actually bottom out. Dahiya says: Reduction in rates will carry on through 2009 and in some micro-markets or product types even till 2010. Essentially, markets or segments that witnessed the steepest resin the 24 month during 2006-07 will continue to get rationalized over the next 4 quarters. Transaction activity is beginning to pick up, but only marginally, and in select locations and projects depending on attractiveness of rates.
However, developers would have us believe that whatever correction was possible has already happened and the properties are today available at best prices. Brijesh Bhanote, vice president sales and marketing at Vipul Limited, says: I think the real estate values have already gone through a big correction and the only way now for it is to go up. The margins at which developers are operating today are any way so low that sustenance can become an issue with many who have not regulated their finances.
Rohtaz Goel adds that the residential real estate is offering best deals to its buyers in current scenario. Most developers have already squeezed their margins to the minimum level, and hence we don't see any further price correction in the real estate. The projects are therefore available at the best price to both end users and investors.
At the same time, they recognize that the demand for affordable and mid-income housing is constant. They feel optimistic that the recent cuts in repo rates and CRR rates will further help in softening the interest rates in the coming months and bring the customers back to the market.
Courtesy:- Times Property dtd:- 21-02-09
