After waiting for almost three years, information technology professional Kunal Bhat has finally decided to take the plunge and buy a property in Thane.
“For the past couple of years, it was very tough. There were token salary increases. Worse, there was fear of job losses.
“The overall uncertainty made it almost impossible to take a call,” he says.
Things are beginning to change because there is less talk of job losses and if things do look up, even salaries might improve by next year.
He also anticipates better job opportunities.
Importantly, he believes with the stock market showing signs of improvement, the realty market will also start rising soon.
Typically, the realty market follows the stock market with a lag of six months to a year. Before it happens, he wants to strike the deal.
Financial planner Gaurav Mashruwala has also been pushing some of his clients towards property, as he believes realty is still a laggard.
“It would be a wise thing to start looking at and identifying properties because the timing is quite right,” he says.
Some traction already seems to be there, if one goes by property consultants and bankers. Says Om Ahuja, chief executive officer of residential property, Jones LangLasalle: “With the number of closures in property deals rising, builders are already beginning to withdraw some of their attractive schemes, like 80:20.”
Ahuja says except the Delhi-National Capital Region, not seeing much traction because of the negative vibes in the area due to legal problems being faced by buyers in the Supertech case, other areas in metros are seeing a lot of action.
And with slightly over a month to go before the festival season starts, this could be a good time to start scouting.
Typically, there is little property buying between May and September because of the monsoon.
There is also Pitr Paksh (September 9-23), considered inauspicious for buying property.
After that, the home buying season starts in full swing and goes on till the end of the financial year.
“The festival season would allow buyers to get freebies and discounts which could be quite useful for a first-time buyer who wants to stay in the residence,” adds Mashruwala.
There were freebies and discounts even in the past few years but a potential buyer lacked the confidence due to tough economic conditions.
With the stock markets beginning to move up and overall change in sentiment, the overall mood is better.
The good news is that this rise in confidence is yet to trickle down to property prices. At least, till now.
Till early this year, buyers were being offered discounts of 10-20 per cent.
Many are still offering discounts. But this will start coming down, say bankers.
“If the property is being bought in an oversupplied area, there will be more discounts and less in undersupplied areas.
“But smart buyers will get good deals because there are also many investors who have held on to properties for a long time and they want to exit.
“There is some institutional pressure from investors and lenders as well,” says a manager in a housing finance company.
For property investors, Mashruwala advises them not look for freebies such as free furniture or kitchen. Instead, try and negotiate a good discount.
Lower EMI burden soon
Two key things favour a property buyer.
One, it is unlikely that the Reserve Bank of India will raise rates in the near future.
Two, it having recently allowed banks to raise long-term capital for funding priority sector housing without keeping the mandatory cash reserve ratio and statutory liquidity ratio.
In its recent policy review, RBI decided not to start a rate cutting process and might not do so in FY15.
But the good news is that rate cuts aren’t far away as well.
Says a report from Religare Securities: “RBI’s rigid stance on containing inflationary expectations means there is little scope of easing, at least in 2014.
“As such, we expect rates to remain elevated for now, with a 25 basis points (bps) cut unlikely to materialise before the year’s fourth quarter.”
Most banks and housing finance companies are charging 10-11 per cent on home loans.
If rates were to soften by mid-2015, the equated monthly instalments would come down. For example, if you take a 20-year loan of Rs 70 lakh (Rs 7 million) now, the EMI will be Rs 68,715.
If the rate goes down by 50 bps after one year, the EMI would come down to Rs 67,500.
In addition, to encourage affordable housing, RBI has exempted long-term bonds from mandatory regulatory norms like the cash reserve ratio (the minimum fraction of total deposits that commercial banks have to hold either in cash or park with RBI) and statutory liquidity ratio (the amount commercial banks must maintain as gold or approved securities before lending).
Freed of these two requirements, banks would be able to provide cheaper loans to customers.
RBI has also redefined priority sector lending for housing as loans up to Rs 50 lakh (Rs 5 million) to individuals for houses costing up to Rs 65 lakh (Rs 6.5 million) in the six metropolitan centres -- Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad.
For other areas, it covers loans of Rs 40 lakh (Rs 4 million) for houses with values up to Rs 50 lakh (Rs 5 million).
While these moves won’t have an immediate impact as banks will take time to raise bonds to lend, if funding from these bonds brings down rates, the borrower can always shift.
For, there is no prepayment penalty on floating loans any more.
Inventory with builders
Another point favouring buyers is the inventory with many builders. According to Knight Frank's last report on inventories, there was 44 per cent unsold inventory in Mumbai Metropolitan Region and 26 per cent in Delhi-NCR. These are from projects launched and remaining unsold.
Says Mudassir Zaidi, national director, residential, Knight Frank: “Though sentiment is up, volumes haven’t risen substantially.
“So, there would still be discounts available.
“This could be a good time to buy before prices start inching up.”
So, buyers have the cushion that prices aren’t running away anytime soon, at least in the next six months to one year, as investors aren’t buying into property still.
“Many investors aren’t sitting on huge stock market profits.
“If the markets were to rise sharply after a few months, then they will start booking profits and investing in the property market,” says a manager in the housing finance company.
Before it happens, this could be the time to purchase that long-pending property.
Beware of under-construction property
One of the highlights of Union Budget 2014-15 was the increase in the interest payment relief, from Rs 150,000 to Rs 200,000, on home loans.
However, there is a twist in the tale. Section 24 of the Income Tax Act says if a house to be used by the buyer is not handed over by the builder ‘within three years from the end of the financial year in which capital was borrowed’, the exemption on the interest amount will only be Rs 30,000 and not Rs 200,000.
The importance of knowing a builder’s record has suddenly become very important.
As a financial planner says: “For someone buying his first property, it is imperative the builder’s track record should be taken into account because most probably this is a lifetime’s savings being ploughed in.
“And, he will look for all kinds of benefits to ensure his monthly budget is kept under control.”
However, property consultants say even the best known builder does not have the best track record.
Even well-known names like DLF and others are known to delay project delivery, sometimes by even two-three years.
“It might not be necessarily their fault because many times, delays in getting permissions from various government agencies lead delivery hitches.
“But buyers would benefit from the arbitrage that they get from buying an under-construction property vis-a-vis a readymade one,” says a property consultant.
He gives the example of a 900 sq ft carpet area readymade property from a builder in Andheri, Mumbai.
It is selling at Rs 3 crore (Rs 30 million) and an under-construction property in a nearby area is going for Rs 2.3 crore (Rs 23 million).
“The buyer knows that even if the property delivery is delayed, it would be worth at least Rs 3.5 crore (Rs 35 million).
“Therefore, it is a risk he is taking but a higher return.” Nevertheless, builders will be under pressure to deliver as consumer courts are also coming down heavily on them.
Last week, Orbit Housing was asked to refund Rs 1.16 crore (Rs 11.6 million) to a buyer and interest of Rs 62 lakh or Rs 6.2 million (at 18 per cent annually) because of delay in delivery.