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Should I buy? Or should I sell property?

Should I buy? Or should I sell property?
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First Published: Sun, Jan 11 2009. 01 15 AM IST
Updated: Wed, Jan 28 2009. 06 16 PM IST
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.
Interest rates to soften: Till now, only public sector banks had gone ahead and reduced interest rates on home loans. Private sector banks have now begun reducing rates, with indications of further reductions in the days to come. According to experts, interest rates could go down by 50-75 basis points in the next two-three months.
The other reason you should wait is that the mid-income and low-income housing sector, so far neglected by most developers, will see a lot of action in the days to come. The primary reason for this is the thrust these two sections of housing received in the stimulus package, announced recently.
Also, some leading developers have already announced their entry into the mid-income and low-income housing space, which had not received as much focus during the boom.
However, this is the time for you to begin your home search aggressively. And when you find a house that is within your budget and fits all your preferences, such as location, size and other conveniences, do not think too much. Go ahead and buy it. Some minor swings in prices should not deter you. After all, you will be using the house to live in.
WHAT TO DO
1. Wait six to nine months before buying a house
2. Expect more focus on mid - and low-income housing
3. Expect prices to reduce by 15-25%, depending on location
4. Expect cheaper home loans with lower interest rates
SHOULD I SELL?
Among others, a compelling reason for you to sell a flat is that you had bought that property purely for investment purposes. Many investors have been trying to pull out their investments. Most are not finding buyers at a price that they think is the fair value of the property. Some are stuck with an investment that is not seeing the light of day due to liquidity problems at the developers’ end. In both cases, you would have paid a higher price for an asset whose price is on a downward spiral.
WHAT SHOULD I DO?
If you had entered the real estate market to make quick money, there is no point in hanging around any longer. Even if you had invested for the medium-term but are facing liquidity pressures, it is better to find a buyer and pull out. However, if there is no compelling reason for you to pull out, it is a better idea to stay invested for the medium to long term, preferably at least five years, because real estate, like any other asset class, goes through cycles and the downturn now is bound to recoup in the future. Also, keep in mind that in the long run, the returns from real estate are second to equity.
Be realistic: Once you are sure that you want to pull out, get a fix on the price. Remember: Consumers are very sensitive about price. Even now, when buyers prefer to wait and watch, there is still demand at a particular price point. So, how do you get a fix on the price of the property? Get an idea of the recent sale price in your locality for a similar kind of property. This would give you a fair idea of the price. Get an idea of how much prices have fallen since January in the locality. Factor in the correction. This would give you a rough idea of how much prices could fall if you keep holding on to the property.
“You have to be flexible during the negotiation process. You cannot afford to get too greedy. If you do, you will get burnt,” says Vineet Singh, business head, 99acres.com. Remember that the buyer knows that you are making a distress sale, so he may bargain further. So, it pays for you to be flexible. If your loan is still running and you wish to sell the house, you will have to involve the loan provider or housing finance corporation (HFC) in the process.
Also, remember that housing in the mid-income and low-income segment is expected to see a lot of action in the future. So, if you are unrealistic about your price expectations, prospective buyers who could have bought your property will move away to mid-income and low-income segments.
Market the property: The best way to market the property is to get listed on realty portals. Even today, when sales volumes are low, realty portal 99acres.com receives around 10,000 enquiries a day. If you are uncomfortable with realty portals, you can always approach your neighbourhood broker. But his reach will be restricted compared to realty portals and the commission could be as high as 1% of the sale price.
WHAT TO DO
1. If you bought the property for a quick profit, try to get out fast
2. If you’re not facing liquidity problems, stay for the medium to long term
3. Be flexible in price negotiation
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Buy
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Wait
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Invest
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Calculate
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The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by Outlook Money. Readers are requested to do their own research. Neither Mint nor Outlook Money will be responsible for any actions and outcomes based on information provided here.
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First Published: Sun, Jan 11 2009. 01 15 AM IST