Scarcity of home buyers amid piling inventory forces investors to sell properties below current market prices
Mumbai/Bengaluru: Gini Suri, a resident of New Delhi, recently sold off her second home on the outskirts of the capital at a price much below what she paid seven years ago.
The 36-year-old pottery artist and her husband paid Rs55 lakh to buy the two-bedroom apartment at Omaxe Green Valley, a housing society on Surajkund road. They sold the property for Rs49 lakh. Despite its strategic location providing access to south Delhi, Gurugram and Noida, she said rentals started to decline drastically in a span of two years, particularly from 2015.
“We weren’t getting much returns out of the property and the rates kept falling. We were getting buyers for Rs63-65 lakh. We thought we would wait for a while... but the opposite happened. Instead of going up, prices crashed further," she said.
Another individual seller from Kolkata is struggling to sell his two bedroom-hall-kitchen flat at Tata Amantra, a project in Mumbai’s Kalyan-Bhiwandi area.
The person, requesting not to be named, said he had bought the property for Rs65 lakh in 2013, but is now willing to take a hit of about 10% on the capital invested and sell it for Rs60 lakh; but getting a buyer isn’t easy.
“The capital value has shrunk. At the end of four years, you realise that you have lost capital in the entire process. Everybody expected the market to pick up, which never happened," he said.
Spokespersons from both Omaxe Ltd and Tata Housing, however, claimed prices have appreciated in their projects and respective localities.
Flat or falling prices and a scarcity of buyers amid a mountain of unsold homes are forcing real estate investors to sell much below current market prices or the original purchase price, or wait indefinitely with no immediate price appreciation in sight.
This is true of not only investor-driven markets like Delhi-National Capital Region (NCR), but also Mumbai and Bengaluru, as individual sellers look to exit residential investments at either a loss or with returns far below their expectations.
“Investors who only buy on an assumption of increase in price are practically out, and the end-user is sitting on almost 20-30% below what is generally the current prevailing price," Vipul Roongta, managing director and CEO, HDFC Capital Advisors, said at Mint’s annual banking conclave.
Pricing is key in a buyers’ market. Property prices across cities have either dipped or remained stagnant in the past two years. The Maharashtra government recently decided to keep ready reckoner rates unchanged in 2018-19 to offer some relief to property buyers. These rates, which determine the property prices in a particular area in which stamp duty and registration charges are levied, are annually published.
Akash Bansal, national head- consulting at property advisory Liases Foras said that with prices not having appreciated, the return on investment has either been negative or low.
“There are more buyers than sellers and most are desperate sellers who want money even if they are incurring certain losses," he said.
Santhosh Kumar, vice-chairman of Anarock Property Consultants, said secondary sale transactions of completed apartments are happening as long as price expectations are low.
“Prices have significantly corrected in most markets, and the under-construction properties are difficult to sell in the current market scenario, even as sellers are giving discounts on such products. But buyers would rather buy under-construction property from the builder rather than from investors or individual sellers, making it even tougher for the latter to sell," Kumar said.
Under-construction homes typically cost 15% below ready homes. Meanwhile, builders sitting on unsold stock are giving discounts similar to individual investors’ sale price as both compete for the same set of buyers.
On Golf Course Road in NCR, there is demand for apartments priced at Rs11,500-13,000 a sq. ft, with good amenities. But these were bought at much higher prices of Rs14,500-15,000 per sq. ft a few years back.
“Some builders have lowered prices close to pre-launch prices. Usually the pre-launch and ready property price difference is nearly 50%. In today’s scenario, a smart buyer should go for a ready apartment and it’s easier to buy from developers because they are more willing to sell compared to individual sellers who have a certain price expectation," said Ankur Dhawan, chief investment officer, PropTiger.com.