Understand The Cues From The Residential Market This Festive Season
The National Housing Board (NHB)
recently published its quarterly index data for the period April to June
2013. The data for the top seven cities suggest an across-the-board
fall in residential property prices in the latest quarter ending June
2013, as against a rise in price in the previous quarter (January-March
2013).
With the latest data getting wide
media attention, the question in the minds of many individuals who
intend to buy a first or second home this festive season is – are prices
beginning to correct? Should one defer purchase decisions and
potentially benefit from lower rates few months down the line?
Various channels have interpreted
this data as early signals of a broad-based price correction. The fact
is that while residential inventory seems to have indeed piled over the
last few years, prices continue to remain high in major metro cities.
This is also corroborated by the NHB Residex city indices, which
suggests that the fall in prices in the most recent quarter has been
largely a phenomenon limited to smaller cities such as Kolkata, Chennai
and Hyderabad, rather than big metros. The data certainly does not
signal an imminent price correction across the board.
Yet another belief being entertained
on various fronts is that a certain section of developers, given the
current levels of inventory and industry slackness, will be forced to
reduce prices considerably. While inventory pile-up is certainly a
reality, the real question is whether this is sufficient cause for
developers to offer considerable discounts to individual buyers.
Overall unsold inventory in cities
like Mumbai is high (as per JLL REIS data, Greater Mumbai has close to
48 months unsold inventory as against an acceptable level of 15 months).
However, a major part of this unsold inventory lies in the Island City,
which was never affordable to small individual buyers. On the other
hand, in the comparatively more affordable suburban locations, vacancy
is relatively lower and prices have not corrected as expected. They
have, in fact, remained stable or risen. Therefore, if anyone benefits
from this current scenario, it is either bulk-buying institutions or
HNIs or NRIs.
In a depressed economy where
cash-conservativeness is the watchword, it could be a natural tendency
to postpone a major financial commitment such as buying a home. Often,
individuals are tempted to time the market in an attempt to buy cheap,
on the basis of interpretations that do not reflect ground realities.
It is pertinent to note that, in a
growing economy, property always appreciates over the long term. It
never does a complete about-turn to march in the opposite direction,
though it could occasionally deviate from ‘learned’ market predictions.
Such deviations are not necessarily corrections in the commonly
understood sense of the term – they could be minor course alterations
that any market must undergo in order to adapt and stay dynamic.
Those who intend to buy residential
property during the festive season out of personal / traditional reasons
are likely tend to proceed with their purchases. For the rest, the
question would be whether one should attempt to time the market.
We believe this question is more apt
for an investor who has the potential to wait, watch and put his
financial muscle to test. Individual end users, on the other hand, will
need to establish whether the financial pain of an identified
residential project is sufficient reason for him to mark down the
pricing of units and thereby send out signals of a price correction into
the market.
That said, actual cash discounts are
definitely not out of question. Buyers with cheque books and/or
pre-approved home loans in hand are certainly in a position to bargain
for a better price. However, caution must be maintained before assuming
complete slackness of sales at the developer’s end. As already
mentioned, no developer will confirm such a state of affairs and risk
sending out distress signals to other potential customers. Demonstrable
earnestness of interest in the project, backed by ability to make a
down-payment, is the best position from where to pitch for a discount.
Also, while certain new projects in a
location may have been launched at slightly lower rates, they could be
at planned or under-construction stage. Ready-to-move-in properties in
the same location will not display the same pricing, as demand for ready
units is always the highest.
by Om Ahuja, CEO – Residential Services, Jones Lang LaSalle India
Source : Core Sector Communiqué
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