Planning to buy a house? The best time is now

Experts say walk-in sales decline and prices have fallen to realistic levels, as speculators move out of the market

For many owning a house is a dream that calls for a strict financial discipline, as the loan repayment tenure ranges from 10 years to 25 years. Housing, a basic need, also enables access to credit market by working as collateral/security.

Various agencies, projecting India’s GDP to grow by 4.25 per cent to 4.7 per cent, feel that economic slide will continue in the second half of the year too. This also means a corresponding impact on the demand in the housing and other segments.

Is it the right time to buy a house?

According to Trivita Roy, assistant vice-president – research and REIS, JLL, this could be the right time to buy a property. There are actually not many walk-in sales happening. Additional efforts are needed on the part of the developer community to push sales and this kind of scenario favours end users. Also, the prices are set realistically, as speculators are nearly out of the real estate market, she said.

The trend in National Housing Bank (NHB) residex, which tracks the movement of prices of residential properties on a quarterly basis reveals that prices in as many as 22 cities out of the 26 measured, have shown a decline during the April-June quarter compared with January-March quarter.

The NHB residex helps property buyers and borrowers in decision making by enabling comparisons over time and across cities and localities based on the emerging trends.

For instance, Ludhiana showed a 5.99 per cent fall, followed by Vijayawada (-5.43 per cent) and Hyderabad with a 4.55 per cent fall. Among other cities, Kolkata has seen prices going down by 4.06 per cent Guwahati (3.92 per cent), Delhi (1.49 per cent) and Mumbai seeing a marginal fall of 0.45 per cent. Maximum increase was observed in Nagpur (3.07 per cent) followed by Lucknow (2.19 per cemt), Surat (1.43 per cent) and Dehradun (0.55 per cent).

In Andhra Pradesh agitations for and against bifurcation of the state are possibly among the reasons for both Vijayawada and Hyderabad figuring in the cities with downward revision. In the January- March quarter, Hyderabad residex fell 2.22 per cent and Vijayawada has seen a 0.5 per cent fall.

As per the census 2011, 31.16 per cent of the total population is in the urban areas. Shortage of housing units in the urban areas for 2013 is estimated at 18.78 million units. Housing loans as a percentage of GDP is around seven per cent, according to the Report on Trend and Progress of Housing in India 2012 of the NHB.

Growing middle class, income levels, cyclical condition and urbanisation are the key causes for the demand for housing to group. Lack of land, finance at reasonable rate, infrastructure, legal and regulatory framework are the main factors that come into play on the supply side of the homes.

Housing, third in 14 major industries in terms of total linkage effect, ranks fourth in multiplier effect on the economy, the report said.

Multiple lending from different banks, housing finance companies on the same immovable property has been a concern for home buyers. NHB-managed Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), available from March 31, 2011 provides database of security interest over property rights.

The mortgage and housing finance market in India is on traction despite the turbulent trend in the micro and macro economic conditions globally.

According to R Nair, deputy general manager, home loans, at State Bank of India, Hyderabad, the demand is more for the sub-40 lakh loans.

“Financial discipline is key while repaying the loans. They should tune themselves to live at about 50 per cent of their salary, as the remaining will be going for the home loans, car loans and others. One should not splurge,” he said.

Many try to pay the loans, as there is a lot of emotional attachment for a home, he said adding that many think it would blot their standing in case they default on loan repayment. Loans are given after assessing the repayment capacity. But external factors too can influence the paying orders- like loss of a job, he said.

“Whether it is the first buy or a second one, people take house loan very prestigiously. Properties come for auction as a last resort for recovery,” he said.

Within a city, there would be some micro markets with higher price index. More office space absorption will mean better demand for new homes and therefore prices will move up, he said.

A report by real estate services firm, Cushman & Wakefield, this month said the estimated demand for office space across the top eight Indian cities during 2013-2017 is expected to be 132 million sq ft (msf). The supply of new office space during the same period expected to be approximately 143 msf of which approximately 90 msf is under construction and expected to be completed by 2015.

Office space absorption in these cities is expected to be about 22.5 msf in 2013, which will be a decline of approximately 26 per cent over 2012. This is largely due to the current economic slowdown, wh­ich has made many companies defer their leasing requirements. The absorption is expected to pick up pace with 2015 with an expected absorption of 28 msf.

Bengaluru is likely to see a net absorption of 32 msf between 2013-2017, followed by Mumbai (24 msf) and NCR (23 msf). Pune (ranked 4) and Hyderabad (ranked 5h) are expected to see absorptions of approximately 14 msf each, Chennai, ranked 6, will see an absorption of about 11 msf. Kolkata and Ahmedabad are likely to see 7 msf and 3 msf of total absorption respectively, it said.

“With economy expecting more stability in the post election phase from 2015, the absorption is expected to pick pace in Bengaluru, Mumbai and NCR. We expect growth to set in from the second half of 2014 when an increase in leasing activities both on account of entry of new companies, expansion of existing companies and relocation and consolidation activities that are expected to continue,” said Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, in the report.

According to P Dashrath Reddy, Andhra Pradesh Real Estate Developers Association president, the prices in the residential segment in Hyderabad have corrected in the recent times due to the agitations in favour of Telangana. However, as a rub off effect of this, there have been instances of prices correcting upwards in Coastal Andhra and Rayalaseema regions in view of the anticipation of announcement of a new capital, in case of bifurcation. According to him, bulk of the demand is for units that are priced around Rs 25 to Rs 30 lakh.

There are several projects coming up around Hyderabad with an asking price starting from Rs 2,500 to 3,000 per sq ft, he said.

In another report, C&W said the housing demand could be 2.8 million units across top eight cities in five years with NCR expected to witness highest demand of 7,78,000 units. However, total fresh demand across India is estimated at 12 million units and 23 per cent of the pan-India demand would be concentrated in top eight cities, it said.

In the mid-segment, the demand could be 1.84 million units by 2017 in these eight cities, which would also see a demand for nearly 6,55,000 HIG units during that time due to increase in housing and income standards, he said.

The gap between cumulative supply and demand (in middle, and high, income group categories), in the period of 2013-2017, is estimated to be approximately 45 per cent in the top eight cities where demand is higher than supply. Most cities are facing a short fall of supply in the mid end segments, it said.

Developers are less keen on smaller ticket prices on account of high land costs, rising construction costs and reduced profitability. Further, financing large scale projects are also becoming a challenge for developers, as financial institutions are wary of lending to the real estate sector, the report said.

Chennai is expected to see the highest demand-supply gap with supply falling short by over 80 per cent of the expected demand. Mumbai is expected to see the least imbalance with demand outstripping by only 5 per cent. Most of the supply will be in the HIG category.

“The gap between fresh demand and supply is expected to rise as supply will fall short on account of economic, regulatory and political scenario,” said Dutt of C&W in the report.

However, some of the demand in the next couple of years can be met through the existing vacant stock, the report said adding that supply is expected to be less aggressive in the short to medium term. New regulations like LARR Bill and Real Estate regulatory bill, which are expected to come into force in the next few quarters, will stagger supply. Additionally, there may also be a rise in construction cost, which may affect pricing and therefore adversely affect end user demand, the report further said.

From Financial Chronicle

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