Sonal Bhavsar-Lodaya, 27-year-old software professional employed with a large consultancy firm in Mumbai is keen to buy a one bedroom hall kitchen flat. Buying a home was always on her mind. The thought of buying a home strengthened after she moved into a rented accommodation with her husband after their marriage. She has been saving money with her husband.
While she chose to invest in fixed deposits, her husband saved money in mutual funds. “We have a budget of Rs 50 lakh. We are ready with down-payment amount. If we like a property we will definitely go for a home loan and buy it,” Sonal says.
Slow real estate market has set the stage right for her and other property buyers.
Low demand by end users and stalled projects ensured that the real estate markets remain grounded over the past three years. Real estate market has seen many structural changes. Introduction of Real Estate Regulatory Authority, Goods and Services Tax on under construction properties and other reforms ensured that the real estate markets undergo change.
After demonetisation, many investors prefer financial assets such as mutual funds over physical assets such as real estate and gold. That has led to lower demand for homes and inventory piled up. The inventory of unsold units was enough to cater to housing demand of 47 months, in the last quarter of the year ended December 31, 2017, according to numbers shared by ANAROCK Property Consultants.
But the real estate markets have seen some improvements last year. The number of unsold housing units came down in the fourth quarter of the year ended December 31, 2018. This inventory can take care of housing demand for only 33 months. The numbers were better because the sales picked up.
“Builders were very extremely cautious about launching projects to align supply with the existing buyer demand. This helped sales pick up momentum in 2018. Simultaneously, builders reduced the average property sizes to align their offerings with the highly-incentivised affordable housing bracket. The affordable segment spearheaded residential growth in 2018,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
For the uninitiated, this means that the existing inventory of unsold housing units will be sold if the current demand scenario continues for 33 months. Inventory includes unsold housing units from both old projects and new launches. Inventory of 18-24 months signifies a fairly healthy market. Though the market is still far away from the ‘fairly healthy’ position, experts say that the home buyers should consider finalising the deals.
“The markets have shown a sign of positivity, as seen in 6% increase in sales during 2018 over the previous year. This has come after several years of declining sales trends. For end users, it is also important to note that average prices and ticket size for properties have seen a definite correction. This is true across all markets. Hence, it can be considered to be a good time to start an investment,” said Arvind Nandan, Executive Director, Research, Knight Frank.
Though buying property is at the top of many individuals, two factors still play on the minds. First is the fear of property prices going down further after buying and second is about the home loan availability. The buyers must understand that the property prices are down or moving sideways.
In the year ended December 31, 2018, residential property prices across the top 7 cities increased by a mere 1-2% when compared to the previous year same quarter.
“Housing prices have bottomed out and chances of prices further going down are very low,” says Naushad Panjwani, founder and managing partner, Mandarus Partners, a boutique investment banking firm.
The home buyers should understand that the real estate market is not a homogeneous one. It has some pockets which are weak and some pockets that always go at a premium. Seldom individuals may get the timing right and hence it makes sense to go with a property if it does serve your purpose and within your budget.
There are three options a property buyer has; under-construction homes, ready to move in and resale properties. The resale properties could be the easy game for most home buyers, as there are many real estate investors who are stuck and may give you a good deal given sedate home prices and low rental yields. But these properties are old and you may not get the best and recent amenities that you are not looking for.
The ready-to-move-in houses are the best option as it reduces the risk for the buyer. As a buyer, you can touch and feel the product, talk to your neighbours if there are any, see the shared infrastructure and amenities before you make up your mind. You can also move in quickly and save on your rent. That looks a good deal. But do not jump the gun. Most experts ask home buyers to be diligent with the paperwork.
Thanks to RERA, most of your legwork is already done. The developers are expected to submit all the necessary documents and approvals to the regulator. Do check if the property appears on the website of the authority. You can check the necessary documents online even before you approach the developer.
“Go to the website of the regulator and do check approval and licenses i.e. commencement certificate for work, environmental clearance, approved building plans, allotment letter, and development agreement,” says Surabhi Arora, an independent real estate consultant.
For the ready-to-move-in homes, do check the completion certificate. An important point – do check if the completion certificate is issued for the floor on which your home is located. It is better to go for RERA registered property only. It will ensure that you get what you pay for and if it does not happen, then you have quick recourse in the new regulatory framework.
One should go for an under-construction property, if and only if the builder is giving you a substantial discount. This discount should be material enough considering the interest cost, cost of alternative accommodation, deferred tax benefits and the uncertainty you are exposed to pertaining to timely delivery of home.
If you are planning to buy an under-construction property, there is one factor you have to deal with – GST. As per extant norms, one has to pay 12% GST on the under-construction homes. There is a possibility that the government may reduce or waive this. You may choose to wait for some time to get some clarity on this.
However, if you are getting a good deal within your budget, you may choose to go ahead. While buying any such property be doubly sure about RERA registration, documentation especially commencement certificate and the track record of the developer pertaining to timely completion of the project. You may choose to visit previously completed phases in a township built by the same builder. You can also search online about the feedback home buyers have shared about the builder.
“Do go through the purchase agreement carefully. Do refer model agreements prescribed by RERA. If the developers have incorporated clauses restricting your rights, steer clear of such deals,” says Naushad Panjwani.
If you are planning to buy an under-construction property on the outskirts of the city or in an emerging locality, do take into account the pace of infrastructure development, adds Panjwani. For example, you may buy a flat in a township thinking that there will be a Metro connecting to the main city and a metro station will be right in front of your home. But what if the Metro project is delayed. Such external factors must be considered and costs of plan B in such circumstances must be factored into.
Once you choose the option, do not hesitate to ask for a discount. Card rates are not sacrosanct for two reasons – First card rates are exclusive of many components. In addition to the card rate, cost of the property also include payments towards stamp duty, registration, loan processing fees, legal due diligence charges, transfer costs. Second, there is a possibility of discounts.
Anuj Puri explains, “It should be kept in mind that prices can only be negotiated if a developer sees a buyer’s serious intent. Also, buyers need to understand that there is a logical limit to how far a negotiation can go. 5-7% should be considered an acceptable discount on the overall property price.”
If you know the prices at which the deals in the same building or locality has happened, then you are better off at the negotiation table. Your property broker and even your loan consultant can be consulted since they handle many such transactions.
Buyers should understand that the negotiation need not be restricted to the price payable. It may also include free access to amenities, structured payment terms, and elongated zero maintenance period.
If you are thinking of taking a home loan, do not forget to work on it beforehand. Do ascertain your loan eligibility. A pre-approved loan can be of use. Before going out for some serious hunting do pull out your credit report. It is available free once in a year. Do go through it before you go out buying a property on loan. It not only helps you in negotiating with your bankers but also saves you from negative surprises, if any.
Think of a situation – you made a down payment for a dream home and then you realised that there is an incorrect entry in your credit report that is pulling your credit score down and no bank wants to give you a home loan. Get your numbers right before you get into the deal.
No matter how good your credit profile is. Do not jump the gun. Do check with the bank how it values the property in that locality. Due to slow real estate market, many lenders have reduced the property values, especially in the resale market. That further pulls down the loan the bank is willing to extend. Such a situation can be averted if the bank is involved at an early stage.
Getting a loan also helps in conducting due diligence of the property. When you apply for a home loan, the lender checks all the approvals and licenses issued to the developer. The lender also audits the quality of construction. A red flag from a reputed lender can help you avoid the mistake of getting into a wrong deal.