The demand for under-construction properties remains strong, especially with the festive season round the corner, even as the number of new project launches are shrinking compared with the previous year. According to an exclusive nationwide survey conducted by property portal 99acres.com and Mint Money, a majority of prospective homebuyers want to buy under-construction properties since they cost less.
In other words, while the demand is high, supply is reducing. Another study corroborates the trend. A joint annual report, Embracing Change: Scripting the future of Indian Real Estate, by property consultants Cushman and Wakefield and Global Real Estate Institute, a global club of senior real estate investors, developers and lenders estimates that the total demand for residential property in the next five years will be of 2.3 million units. “But the estimated supply in the same period is expected to be about 1 million units leaving a shortfall of over 1.3 million units,” it adds.
Graphic by Ahmed Raza Khan; illustration by Shyamal Banerjee/Mint
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The Mint Money- 99acres.com survey was conducted in nine cities (Mumbai, New Delhi, Bangalore, Chennai, Kolkata, Pune, Hyderabad, Nagpur and Ahmedabad) and incorporated responses from around 3,000 prospective homebuyers. The survey covered people in the age group of 18-54 years; the maximum number of respondents were between 25 and 45 years of age.
The survey also put forth similar questions to the real estate consultants. While some of the results matched with that of the homebuyers, others differed. For instance, developers do not think demand is higher for under-construction properties compared with ready-to-move flats available at higher price points.
As many as 290 real estate consultants participated in the survey across the nine cities.
Why is demand up?
Factors such as rising policy rates, increase in the cost of construction and labour costs are to be blamed for the drop in the number of launches. “In addition, there are regional challenges too. For instance, Noida’s market is witnessing a fall in transactions and sales volumes because of the land acquisition row in neighbouring Greater Noida,” says Vineet Singh, business head, 99acres.com.
But demand seems to be up. Almost 49% of prospective homebuyers who plan to buy a house will opt for an under-construction property, according to the survey. But there are specific reasons for that.
Price advantage: Under-construction properties are in great demand because of the appreciation potential that they offer to buyers, apart from being available at cheaper price points compared with the secondary market.
Says Arjun Puri, director, Puri Constructions Pvt. Ltd., “The reason why most buyers look at under-construction properties is that these come at lower rates compared with ready-to-move properties. In addition, these offer huge appreciation potential. While a ready-to-move property may not appreciate at all due to its high price point, the price of an under-construction property may simply double at the time of its possession.”
Festive spirit: The festival season is also causing the spurt in demand. Almost 60% prospective buyers said they would time their purchases during the festivities, according to the survey findings.
And festive discounts are just adding to the zeal. Almost 70% respondents to the survey said that freebies make the deal more attractive and they would like to avail them.
A number of real estate developers that are coming up with projects are doling out freebies and discounts. Return tickets to foreign destinations, a car and 7-8% discount on the sale price are some of the freebies on offer. “During the festive season, sales of the project increases by 15-20% and we believe that a little initiative on our part will further strengthen our relationship with the buyers,” says Vinay Jindal, chairman and managing director, SVP Group, a Ghaziabad-based real estate firm.
In fact, freebies and discounts is one of the reasons why sales maximize during this period.
Even the surveyed consultants feel the festival discounts will increase sales; 44% feel demand for new property will go up; almost 72% feel people time their home purchases with the festival season. Says Ravi Saund, chief operating officer, CHD Developers, a New Delhi-based real estate firm. “Because of the range of discounts, the sales are usually higher during festive months compared with other periods during the year.”
Another key finding
Prices to remain stable: It is expected that prices in the existing projects will remain stable in the next three months. Due to drop in the number of project launches, the fewer new launches will have realistic price levels.
According to the survey, a majority of buyers (37.5%) and real estate consultants (57.8%) expect prices to remain stable even after the festive season. Says Samarjit Singh, managing director, Agni Group, a pan-India real estate brokerage firm, “Developers will not bring down the rates in under-construction projects, as they have commitments with earlier investors. But they will rationalize their price points in the new launches.”
However, there are cities, where prices may not remain stable. You can expect a slight correction in Mumbai in the near term. According to the survey, 48% of the respondents say that prices will go down.
A note on Mumbai real estate by Sanjay Dutt, chief executive officer (business), Jones Lang LaSalle India, property consultants, corroborates the trend. He says, “Due to sanctioning delays in central Mumbai, prices in under-construction projects are under pressure.”
What it means for you?
It is unlikely that there will be any price correction, except in a few areas, where prices are too high.
Adds Puri, “In the past, too, there have been recession cycles. But despite a momentary dip prices have been moving up over the decade. Price correction will depend largely on the company and its debt position.”
So if you are buying a house to live in, enter the market as soon as you get a good bargain. What may work out for you during festivities is the small discount that the developer will offer. Bargain hard to get more discounts.