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Business News/ Opinion / Online-views/  Homebuyers can look for a bargaining edge
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Homebuyers can look for a bargaining edge

Homebuyers can look for a bargaining edge

Photograph by Ramesh PathaniaPremium

Photograph by Ramesh Pathania

Manish Sharma, a resident of Gurgaon, couldn’t believe his ears when a Greater Noida-based developer told him that he could get a discount of 170 per sq. ft on the published price of 2,350 per sq. ft in a project that is nearing completion. This meant a saving of around 1.6 lakh on a 950 sq. ft two-bedroom flat.

Photograph by Ramesh Pathania

The project for which Sharma is being approached is delayed by eight-nine months. The developer promises to offer possession of the apartments by the end of this year.

Usually projects nearing completion come at a premium since the possession is only a few months away. However, that is not the case at present—providing an opportunity to homebuyers—owing to delay in projects and slowing sales.

However, you must always keep in mind the fact that a project that is delayed by some months or a year has a higher chance of further delay. In fact, its price appreciation potential may also be lower compared with other similar projects in the same area.

Delayed projects

About 45% of 1,920 residential projects surveyed in and around Delhi, Mumbai and Bangalore have been substantially delayed, according to the recent findings of Gurgaon-based research firm PropEquity Analytics Pvt. Ltd. The projects surveyed were launched between January 2007 and June 2009 and were to be completed and delivered to buyers by January 2012.

Graphic by Yogesh Kumar/Mint

Also See | Buliding Up (PDF)

The maximum delays have been reported from the Delhi-National Capital Region (NCR). Of the delayed projects in NCR, the Mumbai Metropolitan Region (MMR) and Bangalore, 40% may be delivered by the end of this year and about 12% by the end of 2014, according to the report.

Only 23% of the surveyed projects in NCR were completed by January compared with 61% in Mumbai and 66% in Bangalore.

The report does not identify the developers hit by delays. “Developers in NCR did not have the execution bandwidth to complete the huge number of projects, many of them large in size, that were launched. As for the delays in MMR, the problem was that it takes a lot of time to get necessary clearances before a developer can start construction," says Samir Jasuja, founder and chief executive officer, PropEquity.

Rise in inventory: The sales volumes in 2011 was low. Real estate companies across Delhi-NCR and MMR grappled with slowing sales over the year. As a result of the delay and low absorption, there is a huge inventory that has piled up with the developers. Another set of data from PropEquity corroborates the trend. For example, of the total supply of 112,819 units in the Delhi-NCR that was supposed to be delivered by the end of 2012, 8,280 units are still available for sale. In Mumbai market, the number is huge. Of the 108,942 units that came in the market since 2006-2007, 21,293 units are still available for sale (see table).

What’s in store?

Property prices will continue to rise: While there is pressure on the sales front, the gap between the supply and the absorption is reducing compared with last year. Says Ashutosh Limaye, head (research and real estate intelligence service), Jones Lang LaSalle India, a property consultant firm, “Compared with the first three quarters, we saw the absorption rate getting reversed in the last quarter (October-December) of the calendar year 2011. The gap between the inventory and the absorption is getting reduced."

Since developers do not operate in the short term, they have started increasing their launch rates, he adds. The data available from the property consultant firm clearly indicates a shift in the basic launch rates. In most prime markets the launch rates have risen significantly.

“The prices will go up further. And the rate of price appreciation would be more than the rate of inflation. So it may be a good time to buy," adds Limaye.

Interest rates: High inflation and continued increase in interest rates over the last year by the Reserve Bank of India (RBI) along with economic uncertainty have dampened the home loan market and have kept homebuyers away from the market. Citing this, some banks have already started rate cuts. For example, government-owned lenders Central Bank of India and Bank of Maharashtra have announced slashing of interest rates by up to 0.25% and have also decided to waive the processing fees.

Pune-headquartered Bank of Maharashtra has decided to give housing loans under 25 lakh for a five-year tenor at the reduced base rate (below which it cannot lend) of 10.60%, the bank announced. Similarly, Central Bank of India has cut home loan rates by up to 0.25%. A home loan of up to 25 years and under 30 lakh will be available at 10.75%. While Central Bank of India is offering a blanket waiver of processing fees for loans across amounts and tenors till 31 March, Bank of Maharashtra has waived it only for applications under 25 lakh. Bank of Maharashtra charged up to 12,500 for such loans in the past.

What it means for you

While such a scenario provides an opportunity to prospective buyers, existing buyers continue to suffer. Says Limaye, “It may be a good time to buy as developers are ready to negotiate on the marked price. For the next two quarters, developers will continue to face inflationary pressure and challenges." If you are buying a flat in a new launch and under-construction project, chances are that you will get significant discounts.

For existing buyers, it is a double blow, says Neeraj Bansal, director (advisory), KPMG India, an audit and consulting firm. He adds, “On one hand they have to pay the rent and bear the increased equated monthly instalments (EMIs). Also, with project delays, the pre-EMI component in the repayment goes up along with the tenor of the loan. This is an extra burden on your pockets."

What should you do?

Since bigger and mid-sized developers are aware of the situation, they are now focusing on the execution of existing projects, says Bansal. Thus, it is predicted that developers will increase the rates across their projects once they come closer to completion. If you do not want to miss the opportunity, buy now at negotiated rates. But be careful while selecting the project as delayed projects may not have competitive appreciation potential in the long term.

devesh@livemint.com

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Published: 04 Mar 2012, 07:49 PM IST
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