Wait till January or February,” says Pranay Vakil, chairman, Knight Frank India, a realty consulting firm. A study done by Makaan.com for Outlook Money shows that a majority of respondents plan to wait another six months before going ahead with the “buy” decision. Prices have started coming down. In select locations, prices have been cooling off since January 2008.
To give you an idea: According to a study by 99acres.com, an online realty portal, in Hebbal, Bangalore, prices were already off 40% between January and September 2008. In Marathalli, also in Bangalore, prices came down by almost 30% during the same period.
Price correction is not specific to Bangalore. Between January and September, prices have fallen by 31% in Nerul, Navi Mumbai, 25% in Jubilee Hills, Hyderabad, 19% in Hyderabad and 15% in Dwarka.
WHAT HAPPENED?
High cost of property: Homebuyers have been postponing purchase decisions since most of them were priced out, especially since 2005. In simple words, they did not find a property within their budget, because whatever supply was coming into the market, especially after 2005, was catering to the high-end segment.
High interest rates: Interest rates on home loans, too, were high. After hitting a low of around 7.5% in mid-2004, interest rates started moving. At present, the floating rate of interest hovers at 10-11.75%. High interest rates mean you have to pay a higher price for your loan. According to a study done by Edelweiss Securities, when interest rates hit a low, around 39% of an individual’s monthly income used to go towards servicing the equated monthly instalment (EMI).
Today, this figure has shot up to around 54%.
Negative sentiment: The sector, which had already been battling high property costs and high interest rates, received a blow due to negative sentiment and insecurity among prospective homebuyers about their future earnings.
Liquidity crisis: While this has forced likely homebuyers to postpone purchases, developers, too, are in a spot of bother. The major problem for them is liquidity. Regular sources of funds—banks, IPOs and private equity—have dried up. Sales, too, have taken a severe hit since January 2008.
WHY SHOULD YOU WAIT?
Prices will come down further. January onwards will be the last quarter of the financial year and this will be the last chance for developers to shore up their financials. Since prospective homebuyers have not blinked till now, most experts say that developers will not have much of a choice in the near future.
Financial institutions, too, have been putting pressure on developers to cut prices so that sales can be revived. This would ensure some cash flow for developers and enable them to meet maturing debt obligations. Prices could go down by another 15-25%, depending on the location.