Money Guru| R.K. Arora, chairman and managing director, Supertech Ltd
There is oversupply in some key markets, including Mumbai, Noida and Gurgaon. Will there be a price correction in these cities because of the glut?
I agree that there is an oversupply in key markets. But this will not put any significant pressure on property prices since land is scarce in these regions. Authorities have already allotted the available land to developers for residential and commercial projects. Scarcity of land will make under-construction projects important from the aspect of fulfilling housing demand.
In the next six months, there will not be any price correction. But as interest rates will rise, we may see some kind of pressure on developers after 6-8 months to bring down rates slightly.
So what should buyers do?
Prices in key markets, where there seems to be an oversupply, are affordable at present. Most launches are happening now. My advice to homebuyers would be to buy when the projects are in their initial stages of construction. Once the construction on these projects gains momentum and you see the structure coming up, prices are bound to go up.
In the recent past, it was seen that developers were able to sell all units within a few days of project announcement. One developer said it sold the entire first phase of his residential project in two days and has already got requests for the next phase. What does this trend mean for buyers? Is the demand real or there is some kind of speculation involved?
Developers pre-plan their project construction as well as sale plans. The construction of a project is largely dependant on the sales revenue. It is a marketing gimmick. The reality is that developers keep some of the stock with themselves. After initial sales, prices go up. This is the reason why I said one should be an early buyer. Prices move up once the project comes in the market. It has happened with our projects too.
A buyer should understand the saleability potential of a project. If it is already in demand before its launch, it is likely that there is huge appreciation potential.
Part selling of commercial space is now allowed by most authorities in India. But with part selling come the problems of mismanagement and disagreement between retailers and occupiers. How will this provision impact commercial real estate in the country?
Part selling is favourable for developers as it generates cash for the construction of the project. Small businesses and entrepreneurs drive the demand and businesses for the developers in the commercial segment. What developers can do is to keep the management and control of services in their hands or outsource it to an independent agency.
The government has raised the housing loan limit under the existing interest subvention scheme to Rs15 lakh from the existing Rs10 lakh. Homebuyers in these categories will continue to get 1% interest subsidy for bank loans up to Rs15 lakh provided the cost of house does not exceed Rs25 lakh. How will the increase in the limit impact the real estate sector?
Buyers in the non-metro regions will benefit as the new price band matches most of the housing coming up in tier II and III cities. However, the challenge comes from rising interest rates, high property prices and rising cost of raw material. For instance, since January this year, cement prices have almost doubled. Rise in prices of cement will hit the developers, as they will directly pass on the extra cost of construction to the homebuyers.