There has been a flurry of launches in the premium category in recent months. However, the pace is likely to slacken in the near future, indicates a Mint Money-Makaan.com survey.
A joint report by property consultants Jones Lang LaSalle (JLL) and consultancy firm KPMG India corroborates the findings. Between July and September, the share of launches in the premium category went up compared with that in the period between April and June, the JLL-KPMG report says. “Banking on the tremendous response over residential sales in the lower capital value segment, several developers began launching premium residential projects by the end of 2010. This was accompanied by a rise in property rates across cities. Due to the impact of rising prices, absorption rates have eventually wilted,” says the report.
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Mint Money along with property portal and brokerage firm Makaan.com conducted a nationwide survey around eight cities (Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad and Kolkata) and incorporated responses from 4,597 participants. The maximum number of respondents are between 25 and 45 years of age; the survey spans across the age group of 18 to 55 years and above.
Demand still high in affordable category
Even though builders have been focusing on the premium category, the demand is still predominant in the affordable category, indicates the survey.
At least 67% of the respondents to the survey said they want to own a property that is under Rs 40 lakh. Around 21% said that they can stretch their budget up to Rs 75 lakh to buy a property for self use. According to the survey, very few fall in the category of those deep-pocketed buyers who have the ability to buy property worth at least Rs 1 crore.
City-wise, only Mumbai has the highest number of people who would buy property that is priced above Rs 1 crore. Says Aditya Verma, chief operating officer, Makaan.com: “It is probably because the Mumbai market is costliest in India and comprises genuine end-user demand.”
Says Supreet Suri, director, The Three C Universal Developers: “Understanding the demand for housing, developers are now working on a mixed basket of offerings. You may find the same developer having affordable projects and premium projects running simultaneously.”
A look at the city-wise data shows that except in Delhi (63%) and Mumbai (48%), a majority of respondents in tier II metro cities such as Bangalore (83%), Chennai (71%) and Hyderabad (79%) prefer to buy apartments under Rs 40 lakh.
Interestingly, the survey shows that budget plays a large part in most buying decisions: 38% of the respondents to the survey said so. This clearly indicates that the demand in the affordable housing category will be sustained over the long-term since under Rs 40 lakh is the preferred budget for 67% of the respondents.
What it means for you? If you are investing in real estate, the highest returns would be from affordable and mid-range housing rather than premium and luxury housing for which demand is not so high.
Prices to remain stable
Stoked by demand, property prices have been on a rise in the past six months, according to the survey. But it is unlikely that prices will move up further in the near future and new projects may come at realistic prices.
Says Verma: “It is likely that property prices will not go up in the near future as developers have not been able to sell in the past few months. High price levels and low absorption remain the prime reasons for this. Therefore, developers would want to keep the prices of new launches and under-construction properties under control.”
In order to generate funds, developers would now want to incentivize customers, adds Verma. Precisely for this reason, the market is now flooded with attractive schemes such as “no EMI till possession” and “pay only in 24 EMIs”.
In certain overheated markets, primarily in metro cities, property prices are at their peak levels. There is very little scope for further movement. Says Harmit Chawla, vice-president, sales and marketing, Paras Buildtech Pvt. Ltd: “Delivered projects will hold the prices in the coming months but new launches may see realistic pricing. They will be launched at prices slightly lower than those of the existing secondary market rates.”
What it means for you? If you are a prospective buyer, you may consider new apartment projects for better pricing and incentives. If you opt for existing and ongoing projects, you may need to shell out extra money.
Investment: Delhi and Mumbai emerge as investment destinations with 24% in Delhi and 18% in Mumbai wanting to invest in real estate. Smaller cities such as Bangalore (12%), Pune (15%) and Hyderabad (14%) are less inclined towards investment.
However, overall, most people still want to buy property for self use, indicating huge underlying demand. As much as 79% of those surveyed said they wanted to buy a property for self use. Only about 18% want to buy property for investment purposes. According to financial planners, a self-occupied property is not considered as an investment.
High rentals: The survey indicates that people in metro cities are willing to pay higher rents. For instance, 37% and 41% respondents are willing to pay rent in the range of Rs 10,000-25,000 per month in Delhi and Mumbai region, respectively. For both the cities, an almost equal proportion of people are willing to pay rentals under Rs 10,000 per month.
In Delhi (37%) and Mumbai (41%), the number of people who can shell up to Rs 25,000 per month for rent is higher than those in Bangalore (28%), Chennai (21%) and Hyderabad (31%).
Explaining the trend, Rajesh Goyal, managing director, Rajesh Projects Pvt. Ltd, a New Delhi-based developer, says, “This is primarily because the property rates are high and property owners tend to increase the rental rates according to property rates.”
Since every year, owners increase the rental rates by 10%, “it puts extra burden on the tenants”, adds Goyal. This is evident from the survey: 51% respondents say that buying a house is too expensive for them.
Apartments preferred: You may be living in a bungalow or an independent floor, but it is apartment projects that are drawing the maximum number of buyers. Respondents prefer apartments over independent houses, farmlands or plots: 62% want to buy apartments, 75% want to take them on rent.
The primary reason for such inclination could be the security that the apartment projects provide. Chawla adds: “Moreover, buyers are saved from the hassle of construction.”
Interestingly, very few votes are for serviced apartments. Says Verma: “The concept of serviced apartments is still very new for the Indian market. Also, the rental rates of such apartments are more than a normal apartment.” Out of the 62% demand for buying an apartment, only 5% is that for serviced apartments. Even in the renting space, out of 75%, only 5% want a studio apartment.
Mint Money take
It is time to think over your buying decision since the rental rates will continue to soar. In any case, the standard practice is to hike the rents by 10% every year if you continue in the same house. Eventually, you would be forced to move to the suburbs, where rental rates will remain under control due to non-availability of factors such as infrastructure and connectivity. It’s better to squeeze your budget a bit to pay the equated monthly instalments instead of rent.
Graphic by Yogesh Kumar/Mint