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Your dream house may have to wait a little longer
Urmila Rao, Outlook Money | May 18, 2007
Asit Basu and Ankit Arora have not just been neighbours for 15 years in their Delhi colony, but also friends. Both are in their early 40s and are vice-presidents in software firms. They love to meet every weekend for a game of snooker over unhurried sips of Blue Label.
On one such Saturday evening recently, Basu told Arora that he would soon be throwing a house-warming party for a home that he had bought in Kolkata. He had purchased the three-bedroom flat spread over 1,800 sq. ft in upcoming New Town Rajarhat area for Rs 40 lakh (Rs 4 million). Basu chose to buy a flat in Kolkata because he wants to spend his retired life in his beloved hometown.
Arora has also been looking for a house in Delhi/NCR for the last six months, but feels that his house-warming celebrations will have to wait.
He had worked his finances reasonably well before embarking on his hunt, but the quick succession of hikes in housing loan rates caught him by surprise. Arora is uncertain if he would be monetarily equipped to pay about 20 per cent higher EMI.
His enthusiasm is also being dampened by the fact that most of the condominiums available in the National Capital Region are high-end. The price of these condos is exorbitant - Rs 55 lakh-60 lakh (Rs 5.5-6 million) for a three-bedroom house.
Had the interest rates been at the earlier levels of 7-8 per cent, he would probably have been able to justify buying luxury or semi-luxury apartment to himself. But the present scenario seems uninviting to him.
Patience will pay
The demand for housing has fallen in many places, the fall being particularly steep in NCR and Mumbai, but prices haven't dipped correspondingly. That is because developers, especially the bigger ones, have the financial strength to sit on their stock and absorb the revenue shock without flinching.
But that might not continue for long. Says Mumbai-based Pankaj Kapoor, CEO of Liases Foras, a real estate research and rating agency, "After 8-12 months, it is likely that the developers will feel the pressure to liquidate their assets."
That's when the prices can soften. "By then, there will also be fresh supply of housing units," adds Kapoor.
Is it a good time to sell?
Mumbai's heated up. Not interested in spending his retirement days in Kolkata, Arora, checked with his friends in Mumbai, a city he can relate to, having done his schooling there.
Much to his chagrin, he found out that his friends, too, had been deferring their purchase decisions for the same reasons that applied to Delhi/NCR: overheated prices, paucity of reasonably priced homes and high home loan interest rates.
"Today, 95 per cent of the supply is catering only to eight per cent of the demand," says Kapoor, talking about the flush of luxury apartments in the market and dearth of no-frills housing units. He adds: "With every 0.5 per cent increase in home loan rates, the demand dips by seven per cent."
This demand-supply imbalance has jacked up the rates 30-40 per cent above the market threshold in the Mumbai residential market. In such a scenario, the dip in demand in not unusual. Kapoor feels it is not the time to purchase, but recommends sell right now.
One of Kapoor's friends still rues that he let go of the opportunity to invest in Navi Mumbai in December last year when the rates were Rs 1,800-2,400 per sq. ft; they have now escalated to Rs 2,500-4,500 per sq. ft.
"Navi Mumbai is likely to see a huge appreciation of about 70-80 per cent in the next six years," says Kapoor.
Kolkata much cooler. Basu had also investigated the market in Pune, where his sister is based, before zeroing in on Kolkata. He found out that Kolkata property was priced 10-12 per cent lower than that in Pune. Also, the returns were 20 per cent higher in Kolkata. It intrigued Basu why the Kolkata market was not as overheated as those in other cities.
"The prices are still low in Kolkata," explains Kolkata-based Abhijit Das, regional director, TrammellCrowMeghraj, a real estate consultancy firm. "Unlike the markets of Delhi and western India, the market here never went up to that level. The prices in even 'A' category locations are much lower in Kolkata as compared to 'A' category locations of other cities," he says.
This happened primarily because Kolkata has been a market of end-users and not investors, but the scenario is changing fast now. Prices are climbing steadily by 10 per cent per year. Says Das, "The medium- to long-term prospects are extremely encouraging in Kolkata and other markets in east India. Prices might witness one of the sharpest growth curves ever in the two- to five-year horizon. Annualised returns for the next year are expected to be around 15 per cent. After that, the average returns will be around 20 per cent per year."
Pune strikes an average. Housing is costlier in Pune as compared to Kolkata, but is still lower than Delhi/NCR and Mumbai. A three-bedroom flat of 1,350-1,600 sq. ft in Pune would come at Rs 45 lakh (Rs 4.5 million) with an expected price appreciation of 15 per cent in the next year.
Pune, an emerging infotech destination, is exuberant about the real estate developments it is witnessing. "The market is sluggish at present," says Pune-based Aditi Watve, senior executive (investment and sales), TrammellCrowMeghraj, "but is likely to go up in August-September. Six-eight months from now, there will be no drop in the rates and genuine buyers will create a strong demand."
Chennai and Bangalore, too, priced high. The markets of Chennai and Bangalore lack the exuberance of Pune. Housing continues to be costlier in Bangalore with property on Outer Ring Road, off Sarjapur, slated at Rs 4,290 per sq. ft and that in Whitefield at Rs 3,000-3,500 per sq. ft.
Prices in even suburban areas like Jakkur and Hennur, 6-8 km from the city, is Rs 3,000 per sq. ft. Riding on the IT wave, a few pockets of the city had seen prices going up by almost 200 per cent last year.
"The trend correction will happen," says Hari Menon, vice-president (sales and marketing), Mantri Developers. "The prices will stabilise, but in the next six-eight months, we anticipate a 10 per cent appreciation."
How good is it a time to sell? "Someone who has been invested for two to three years will get 80-150 per cent returns on his investment," says Menon.
Chennai is no less hot. In Old Mahabalipuram Road, prices range between Rs 3,000 and Rs 4,500 per sq. ft. The enthusiasm of buyers seems to have waned. Says Thirumal Govindraj of Chennai-based CB Richard Ellis, a property consultancy firm, "The prices have escalated up to 20-30 per cent. We expect a correction of at least 15-20 per cent to happen in the first quarter of 2008. A demand-supply mismatch is leading to speculation and causing rates to spiral up." An appreciation of only 5-10 per cent is expected in the next six-eight months.Basu and Arora still meet for their 'snooker-over-sips' ritual every Saturday. Arora is still hopeful of buying a house in Delhi or NCR or even Mumbai. But, he still does not have answers to the questions 'when?' and 'where?'