Market turns buyer-driven as slowdown hits real estate

From past several months, the real estate sector in India has been witnessing a downtrend, although, it started at different times in different regions. Mumbai property market has been observing slowdown for almost a year, while southern cities like Bangalore and Chennai are witnessing downtrend from the past two quarters. The impact of slowdown has started showing of signs in Delhi-NCR too in the recent quarter.

Though the number of property transactions has been reducing to a large extent, the developers are not yet ready to cut down the prices of properties. According to sources, Gurgaon has observed 30 percent fall in property deals compared to the previous year. Many investors, who had bought properties and were hoping to sell them later for profit have started selling them for a lesser or no profit. Many developers facing liquidity crunch are offering units at 5-20 percent discount. Various discounts, schemes and offers being offered on the recent real estate projects is also a proof that slowdown has hit the market badly. The slump is also seen in the increasing gap between prices in the primary and the secondary markets (where you purchase from another buyer).

However, with real estate in India being hit by slowdown, home buyers are left with an excellent opportunity as they can avail properties at the best so ever rates. All they need to get such property is some understanding about the market and the art of bargain hunting.

The prices of properties in areas which are yet to develop, but had seen frequent price-hikes due to market speculation, are now stagnating. For instance- the real estate prices in Dwarka expressway was rising every now and then, till a year ago, despite no infrastructure development. But now, the prices have become still with not much change. Price corrections are also being made in projects where barely 20-30 percent payment has been made and possession is a couple of years away. It is expected that many buyers or investors may quit from these projects.

Price-trend in various micro-markets 

Over the past one year, property prices have not seen much change across various micro markets of India. In Delhi-NCR, Gurgaon witnessed 18% hike in the past one year while Noida witnessed only 2% growth. In Mumbai, Thane witnessed 10% hike in the same period followed by Western suburbs seeing 9% growth in property prices, Navi Mumbai and South Mumbai regions witnessed 6% rise and Central suburbs recorded only 4% growth.

North Bangalore has recorded a13% hike in property prices in the last one year. Only the real estate prices in Chennai have recorded significant hike property prices over the past one year. Velachery saw the maximum hike of 40%, followed by Mylapore with 26% hike, Adyar 17% and Mogappair 9%.

Reasons for slowdown 

The realty market in India is subject to cyclical downturns, say experts. Since numerous projects are being launched, the inventory level is increasing and further, due to the huge inventory, absorption rate is declining. Even though the market is not witnessing fast-track growth, the prices are skyrocketing. As a result of all these, new investors are hesitating to invest in the market.

The economic slowdown has led to a steep fall in the real estate market. Demand for housing units has been drastically reducing and buyers are also finding it difficult to afford the high price range of properties. With no proper measure for price correction, several markets had seen very-high prices in the past, mainly due to speculative buying and selling.

What buyers have in store?

Slowdown in real estate is somehow a ‘€˜boon’ to homebuyers because when the sales drop, developers get ready to offer units at lower prices. Those who had given up the idea of buying property due to high rates can now start hunting for one, especially in projects and locations that would have been difficult to secure in good times. Buyers are likely to get good deals in the secondary market, as the individuals who had invested in multiple apartments are craving for liquidity and thus would be ready to sell at a discount.

On the other side, buyers too are hesitating to buy properties as they are concerned about factors such as market slowdown, home loan rates, etc. All these factors have terribly slashed down the property sales which has led to piling up of a huge inventory of unsold properties.

In the last three years, the number of unsold housing units in prime cities such as Delhi-NCR, Mumbai and Hyderabad have nearly doubled. According to Liases Foras, the stock level of residential units in NCR has reached 31 months at the end of March 2013 against 15 months at the end of March 2010. Mumbai Metropolitan Region (MMR) has observed a 40 months inventory at March 2013 against 17 months at the end of March 2010 while the inventory level was at 49 months at March 2013 in Hyderabad against 23 months at the end of March 2010.

Real estate experts predict that the same situation would continue until a new government is in place after the general election in May 2014, which gives enough time to buyers to find their dream homes. The real estate in India has started showing of signs of a buyers driven market. Adding to this, personal disposable income (PDI) in India is likely to keep growing which adds to the buyers potential. A 15.7 percent growth in PDI was recorded in 2010-2011 while in its previous fiscal it had witnessed 14.7 percent growth.

Offers and schemes to lure buyers 

Nowadays, it has become quite common to see developers offering various schemes and discounts in order to attract buyers. Subvention schemes like are largely being offered by builders. Buyback schemes have become popular in markets like Noida extension. Though these schemes seem attractive at first, buyers have to be very careful while choosing one. Developers would have kept many hidden costs in dark which buyers do realise later and end up paying more than the actual cost.

Market watchers suggest that buyers have to compare the prices with prevailing market rates. It is safe to avoid buying expensive housing units, particularly in remote locations. It is important to ensure that the project provides good quality, proper infrastructure, etc. Along with this, do some research on the advantages the location would offer and its connectivity from prime locations.

Another important factor that a buyer has to check is the track record of the builder, the type of construction quality he offers and his financial stability. The developer should have title of the land on which he is developing the project and also all the required approvals.

If you are buying a property purely on investment basis, then at such a market condition, make sure that you have a long investment horizon.

Advice to investors 

Investors do not have to panic because of the slowdown in real estate market. Experts suggest that if your investment enjoys sound fundamentals, you should stay put. Even during a slowdown, some of the investments appreciate depending on various factors. At some point of time, the market is set to stabilise and then the prices may gain stability.

But if you have over invested in the market and have got struck in a situation wherein you cannot wait for your investment to grow, then consider selling out some of them for some profit (but advisably not for zero profit) if you have found a right deal. Retain only some of your investments which you think you can afford the payments. But however you have to be aware and careful about the risks associated with your investments.

Slowdown in real estate can, on one hand, curb quick profits and narrow down the investment options. But on the other hand, the same opens up great opportunity for buyers. So one has to look for good deals that ensure the best price.