If you are a prospective homebuyer and are looking to invest in one of the upcoming under-construction apartment projects, this may be the right time to enter the market. According to a survey conducted independently by Mint Money among developers, about 30% of the developers (maximum among those surveyed) are not planning to increase the prices of their projects. While some have already increased prices, others will do so only by the next quarter or so, leaving a window of opportunity open for you.
The survey was conducted among 22 developers across Delhi, Mumbai and Bangalore through email. Out of these, four did not respond to our queries. Surveys by two research firms, Crisil Research and Colliers International, indicate stability in prices.
Responses indicate stability in prices
No price hike in near future: Barring a few, most of the bigger developers said that there will not be any price hike in the ongoing projects in the near term. Eight out of 26 developers ruled out any price hike as of now. Another said the hike wouldn’t be across India. Says Rajeev Talwar, group executive director, DLF Ltd, “There will not be any revision in the short term.”
The pan-India panel of developers, Confederation of Real Estate Developers’ Association of India (Credai), too, has confirmed that there is no unanimous decision on price hike. Credai’s national president Lalit Kumar Jain confirmed that developers will not hike the rates in the short term.
Few hikes: However, about 27% (7 out of 26) were positive about price hikes. But only three have already increased the prices of their projects; four others said they would do so by the next quarter or sooner.
Some developers revised their rates since 1 April due to the hike in service tax from 10% to 12% and on account of rising demand.
Overall, while 30% felt there will be no price hikes, about 27% have either increased or are planning to increase prices; none of them indicated reduction in prices.
Why will rates remain stable?
Inflationary pressure can’t be passed on to buyers: Most developers currently face similar problems—cost of steel, cement and associated building materials and cost of labour has gone up. Increased service tax is adding to this pressure.
A report from Crisil, an independent research firm, published in March, says new home prices in Mumbai are unlikely to decline in 2012. It says notwithstanding a 40% dip in sales of new homes since mid-2011 in Mumbai region, a sharp rise in construction and funding costs, in addition to amendments to the development control regulation (DCR), will increase costs for builders and prevent a reduction in home prices.
Says Binaifer Jehani, director, Crisil Research, “Home prices in Mumbai are still unaffordable hence developers of affordable and mid housing projects will also not be able to increase prices in 2012 despite the increased costs. Likewise, there is no room for developers to reduce prices as it would lead to a dent in their margins”
For the Mumbai region, Crisil expects a 7-9% increase in costs of key inputs in 2012, following a 25% increase in these costs the year before. The report adds that funding costs will also remain high. Given the constraints in obtaining a significant increase in bank funding, builders’ dependence on costlier alternative funding will continue, the report says.
Jehani’s view is supported by the fact that developers too are not sure if rate increase will be a good idea in such a scenario. Says Niranjan Hiranandani, managing director, Hiranandani Group, a Mumbai-based real estate firm, “Though there is a cost push on developers because of rising input cost and the recent service tax hike. It is difficult to say if there will be any price revision.”
Poor sales, new launches increase inventory: Sales volumes remained relatively low due to cautious investor sentiment. The combination of poor sales across regions and relatively strong launches in the first part of the year have also led to inventory build-up in most cities. A study from Colliers International, an international property consultant firm, corroborates the trend. It says prices have not shown any significant rise. Says Surabhi Arora, associate director (research), Colliers International, “Since January, the hike is in the range of 1-5% across the top six cities—Mumbai, Chennai, Bangalore, Delhi-National Capital Region, Pune and Kolkata. The rate of increase in capital values has gradually come down in the past three quarters, indicating stabilization in rates.”
A report from Kotak Securities Ltd published in March says that except Bangalore, other important regions such as Mumbai, Gurgaon and Noida performed badly during January on the sales front.
Prospective buyers need not worry about the hikes by some developers. A closer look at some recent deals tells us that there is a difference between the published/quoted price and the actual transaction rate. Commenting on Mumbai market scenario,
Jehani says, “To offload the existing inventory, developers are under pressure to sell at discounted rates. Currently, the quoted rates are at a premium of 5% to what they were four months back. However, the final transacted rates are the same as what they used to be four months back.” There are similar cases in other regions such as Delhi-NCR, Pune and Hyderabad.
Moreover, you should not worry about the recent revision due to service tax increase too. This is because the impact of the hike in service tax is small in comparison with the overall price of the apartment. The hike would be slightly balanced by moderation of key policy rates. Adds Arora, “Keeping in view the current moderation in inflation numbers and reduction in key policy rates, the home loan rates are expected to come down. This would provide the much needed confidence to the end user.”
So this is the time to start looking for the property you want to buy. But remember to negotiate hard on the quoted price before signing the builder-buyer agreement.
Also See | Where are the prices headed? (PDF)
Illustration by Shyamal Banerjee and graphics by Yogesh Kumar/Mint