Will the festive season bring.cheer to the real estate market?

By TEENA JAIN KAUSHAL

eptember heralds the start offestive season. It is the timeof the year when peoplewantto make new investmentsandpurchases.To cash in on thesentiment, property develop-

ers come up with discountsand schemes·to attractbuy-ers, offering freebies such asgoldcoins,car,holidaytrip and

Colliers International India, says: "Generally, thefestival seasonis a goodtime for real estateplay-ers.This year we havealready started witnessingsometraction in the market." He saysin Mumbai,somemajor players suchasOberoi,Tata, Piramaland Peninsulahavecomeupwith major launchesfor the pre-shraddh period. In 2015, shraddh

dates are from September28 to October 12.Let'slook at someof the schemesbeing launched.Also,doesit make senseto buy now or wait for a pricecorrection,which mayor maynot happen?modularkitchen.

However,this year, with salesslowing, devel-opers are under a lot of pressure to clear inven-tory. To encouragepeopleto buy, they havebeencomingoutwith various schemesandevennegoti-ating prices with potential buyers.Not just devel-opers.Banks and other lenders, too, try to cashin on the festival fervour by giving loans on easyterms. For example, with HDFC Bank recentlyslashedits base rate by 35 basis points (bps) to9.35per cent and other banks likely to follow suit,loans could becomecheaper.All this could resultin higher sales,usually 20-25per cent more thanthe rest of theyear, during the season.

The last coupleof years havebeendull for thereal estatesector due to excesssupply, indefinitedelays in projects and regulatory hurdles. Prices,too, havebeen stagnant.That is why despite theplethora of offers,potential buyers are wonderingif it is the right time to buy a house.

SaackethChawla,DeputyManagingDirector,

PART-PAYMENT SCHEMESThere are many schemessuch as 20:80,10:80:10or 8:92that allow you to buy the property by mak-ing part payments. Some developershave alsolaunchedsubventionschemes.

How subvention schemeworksSupposeyou book a house under the 10:80:10subvention scheme.Under this, you have to pay10per cent moneyupfront to the developer.Therest is paid by the bank in the form of loan to thebuyer.Thebank releasesthe loan to thedeveloperas construction progresses.The developerpaysEMIs till possessionor for a period mentionedinthe agreement.The schemeworks well for thosewho stayon rent. This way, they don't havetobeartheburdenofbothEMIsandrent while their houseis beingbuilt.

MONEY TODAY 13September 2015

• COVER STORY I REAL ESTATE

15,154

POOR RETURNSPrices (per sq.ft.) in the country's major real estate markets

4,422

3,161

Source: Prop Tiger

Watch out for• Problem arises if the developer delays the

project. According to data from Liases Foras,a real estate research firm, only 29 per centprojectsin Delhi-NCRwere onschedulein Junethis year.

• These subvention schemes areoffered at a price that is at least10 per cent higher than the ratechargedfor regular schemes.

• Any delayed payment or defaultby the builder to the bank will im-pactyour credit history.

100/0

LOW INTEREST RATES

This is the differencein the price charged

under subventionschemes and regular

schemesThe developeroffers a lower interestrate for thefirst fewyearsbypayingapart of the interest on the loan to reduceyour EMI.

How it worksYoubuyahouseandpayEMIsat the normal inter-est rate. The interest differential is reimbursedbythedeveloperafter yousubmit theproof of interestpaid. Generally,such schemesare applicable forthe first fewyears.

41 MONEY TODAYSeptember 2015

Q4FY'14jQ1FY'16

j4,398

r-3,669 5,601

3,564

~D/D

BAD.t

)1YD~~A

Watch out for• It is not thebankwhich is givingyou adiscount.• It is the developerwhich is reimbursing a part

of the interest.

• Youwill haveto pay full interest to the bank• If the developer fails to reimburse the pay-

ment,youwill haveto resolvethe issuewith thebuilder.

• It is alwaysgoodto arrive at the monetaryval-ueof thediscount.

• Comparesuchschemeswith upfront discounts.• Bargain for cashdiscounts.

GUARANTEEDRENTALSThedeveloperoffersguaranteedincomeeither un-til possessionor after possession.This is for thosewho want to invest in income-generatingassets,want a guaranteeon their investments.

How it works?The developereither pays you rent for a fixed pe-riod during construction or after possession.Inthe first scheme,the buyer gets regular paymentsfrom the developerduring constructionwhich off-sethis or her EMVrentcosts.In the latter scheme,

• COVER STORY I REAL ESTATE

which is generally for properties that.are outsidecity limits, the developeroffers rental income tothebuyer after possession.The tenure of both theschemesis fixed.

Watch out for• Developersdisguisediscountsby offering such

schemes.• There is noguaranteeon payments.The build-

er candefault.

INVENTORY OVERHANGMonths that developers will take to clear all unsold inventoryat the current rate

Noida 56

1111111111111111111111111111111111111111111111111111111II

Gurgaon 45

1111111111111111111111111111111111111111111111111111

Hyderabad 42

1111111111111111111111111111111111111111111Mumbai 42 .

1111111111111111111111111111111111111111

Chennai 35

111111111111111111111111111111111111

Bangalore 33

1111111111111111111111111111111111

Kolkata 33

1111111111111111111111111111111111

Ahmedabad 30

1111111111111111111111111111111

Pune 24

1111111111111111111111111 Source: Prop Tiger

DISCOUNTS AND NEGOTIATIONSWith distressedsellinghappening,expertssayit isthe best time to buy a house.According to the lat-est Knight Frank report: "Stagnantprices and de-layedproject deliverieshavecontributed towardsinvestorsentering into a 'distressedresale' mode,as theyarc nowoffering to exit at a 15-20per centdiscountto the primary market price."

Moreover,with oversupply,it is a goodtime to

61 MONEY TODAYSeptember 2015

enter into negotiations.Sumit Jain, Co-founder&CEO, Comrnonltloor.com, says: "With multipleoptions, buyers are spoilt for choice.Consideringthis, it is a good time for end-usersto enter themarket and negotiatewith thebuilder/seller."

SaackethChawlaof Colliers agrees:"Genuinebuyersmaybe ableto getgooddiscountsfrom de-velopersat a time they needfunds and salesaredown.However,the buyer shouldmake sure thatthepricepoint onwhich thedeveloperis offering adiscountis not already inflated."

Experts say though the offers may be tempt-ing, buyers should keep their eyesopen.This isbecausetheseofferscouldbeaway to attract buy-ers for a project that may be unviable 01' difficultto implementbecauseof problemswith approvals.So,beforebuying, buyers must checkwhether allapprovalsare in place01' not.

WILL PRICES FALL FURTHER?Real estate has always beenthe most sought-af-ter asset class.And with goodreasons,consider-ing the kind of returns it hasdelivered in the past.Even after the financial crisis of 2008,somerealestate markets saw unprecedentedgrowth. Peo-ple shifted to real estate and gold as safehavensas thei.rinvestment in equities lost more than halfthe value.

The increaseddemandfor real estatebetween2009and2013sawpricesdoublein somemarkets.For example,NoidaExtension,oneof thekeymar-kets in Dellii-NCR,sawprices rise from ~1,830persq.ft. in March 2010to ~3,056per sq.ft, in March2012,asper databyProp Tiger. com.

navailability of affordable houses in Mum-bai led to a significant rise in prices in areas likeDombivaliwhich fall in the Mumbai MetropolitanRegion (MMR).Prices in Dombivaliwent up from~,176 per sq.ft. in March2008to ~4,856per sq.ft.in March2012.

But after 2013, prices have stagnated oreven declined across markets. Real estate wasthe second-worstperforming asset class in 2014after gold.

One of the biggest reasons for this was theflurry of new launches in 2010/12.As a result,supply is more than demand in most part of thecountry. According to a report by Knight Frank:"Delhi-l\'CR,India's largest residential market, is

• COVER STORY I REAL ESTATE

14,123

NEW LAUNCHESDRY UPThane & Gurgaon seeneutral to positive growth;others see a drop

2,825

JnoAhmedabad Bangalare Chennai Hyderabad Kalkala Naida

Source: Prop Tiger

"

looking at an unsold inventory of 189,768units."It will take nearly five years to get fully absorbedat the current pace.

With market dynamicschanging,experts saypricesare not expectedto rise sharply in the nearfuture and those looking for quick returns shouldstay away. Rajeev Bairathi, Executive Director,Knight Frank, says: "Whether com-mercial or residential property, theinvestment should be for the longterm. Realestateis a long-termassetclass and, therefore, the investmenthorizonshouldbefiveto sevenyears."

Investors earned huge returnsduring the real estate boombetween2004/05and 2010/11.But in the cur-rent scenario,with inventories pilingup across the country, experts sayone shouldnot expect huge returns. They expectonly a slight price rise in various markets. How-ever,for end-users,it's a goodtime to sealthedeal.

This is the drop insales in the first

quarter of 2015/16across nine cities

DEMAND AND SUPPLYExpectations were high among developers thatfactors like a new governmentat the Centre andlower interest rateswill givethe sectora newleaseof life, but nothing of that sort has happenedyet.Contrary to that, inventories are piling up across

81 MONEY TODAYSeptember 2015

.Q4FY'15 Q1FY'16

9,336

Pune Mumbai NaviMumbai

Thane Gurgaan

markets aspeopleare sitting on the fencewaitingfor the right time to buy.

Sales in the first quarter of 2015/16tanked18per cent across nine cities (Ahmedabad,Ban-galore, Chennai, Gurgaon, Hyderabad, Kolkata,Mumbai, Noida and Pune), as per data by Prop-Tiaer.com. Some markets, such as Ioida andChennai,witnessed an even sharper correction.Only 49,448units were sold in the firsj quarter,comparedto 60,435units in the previous quarter.All these markets saw sales fall in the range of5-34per cent.

AccordingtoanAmbit Capital researchreport:"Our visits to five property registration offices inMumbai suggestsa sharp drop in registration ofnewresidential propertiesand data from propertyvaluers in Maharashtra and Tamil Nadu suggeststhat transaction volumeshave fallen by 10-15percent per annum for three consecutiveyears now.Also, newlaunchvolumesare down40-80per centon a pan-India level." According to the report,property pricesmayfall by half by next year.

The situation has became so bad that realestate has given less returns than bank fixeddeposits in the last one year. The biggest issuefaced by buyers is the inability of builders to de-liver projects on time. The problem of delayeddelivery has become very acute, especially in

Delhi-:\,CRand WvlR markets.

POSITIVE DEVELOPMENTSWhile somesay that there is an oversupplyin themarket and buyers are still waiting to make aninformed decision, Sumit Jain of Commonrioor.com, says there are multiple positives that wemust look at.Buyer's Market: Unlike earlier, buyers nowhavea plethora of options depending on budget, re-quirements, etc. Moreover, various governmentinitiatives suchas theHaryana affordablehousingpolicyand theDelhi land poolingpolicywill leadtobuilding of affordable housesfor low and middleincomegroups.Developers focusing on completion: One ofthe major positiveshas been that developersarenow seen to be focusing on completing previousprojects rather than launching new ones. Com-

monrtoor.com data suggeststhat the number ofnewproject launchesin the secondquarter of 2015

NEW HOME SALESDelhi-NCR areas have been hitthe worst in the lasttwo quarters

City 04FY'15 01FY'16

297 -34

Bhiwadi** 1,144

Navi Mumbai 1 3,571

Chennai I 5,111

Noida* I 7,250

Hyderabad 2,632

Mumbai I 6,2331

Pune 11,074

Gurgaon 1,536

Kolkata 2,8791

Thane 4,291

Ahmedabad 2,9851

Bangalore 11,280

Total Sales 60,435

785 -31

2,5931 -27

3,882 I -24

5,5241 -24

2,024

1

-23

9,019 -19

1,418 -8

2,724 i -5

4,211 -2

--2-,-5-56-, -14

9,645 -14

49,448 -18

'Noida includes Greater Noida and Yamuna Expressway., Bhiwadi includes Bhiwadi. Rewari. Dharuhera. Behror. Manesar and Neemrana

fell considerably in most metros as comparedtothe secondquarter of 2014.Cut in interest rates: Oneof thepositivedevelop-ments at the policy level has beenthe cuts in therepo rate. Experts say the ReserveBank of India(RBI)may cut interest rates further.

It has cut the repo rate three times th.isyear,by 75 basis points. This is good news for homeloanborrowersas it hasgivenbankssomeroomtobring down their lending rates. Banks have,how-ever, been slow in passing on the benefit10 cus-tomers. They have reducedhome loan rates by amaximumof 25 to 30bps.

After the recent rate cut, EMls have fallen by~823on a homeloan of ~50lakh for a tenureof 20years, if the interest rate is 10 per cent. In casethe loan is for ~1 crore, the amount savedwill be~1,650.Had banks passedon all the benefits tocustomers,that is, reducedthe homeloan rate by0.75per cent,borrowerswould havesavedat least~,.J58 on a loan of ~50lakh at an interest rate of10per cent.A personwould havesaved~4,915ona homeloanof ~1crore for a tenureof 20years.Regulator for real estate market: The govern-ment's 'Make in India' and 'Digitisation' initiativeshavecreatedhope in the real estatemarket. Indi-an property lacks regulation, professionalismandtransparency.

According to a report .from Ambit Capital,more than30per centof India's real estatemarketis fundedbyblack money.The sizeof India's blackeconomyexpandedmaterially under theerstwhilegovernmentandgiventhat blackmoneyfindshighacceptancein physical assetssuchas real estate,a large portion of these funds were presumablychannelised into real estate. However, the NDAgovernmentis engineeringa clampdownon blackmoneyin India. The 2015/16UnionBudgetexplic-itly aims to disincentive black economyand curbthe demandfor physicalassets.

CONCLUSIONOffersand freebiesmust becloselyexamined.It isalwaysgood if you find out what priceswerepriorto the discount. So, one must always decodetheoffers to determinetheactual moneysaved.•

With il1plltsfrom lillSY Mathe\\'

@teena_kausha/

MONEY TODAY 19September 2015