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Buying property? Why you MUST wait
Amar Pandit in Mumbai | October 27, 2008 10:56 IST
A couple of weeks ago, a number of potential homebuyers went to the Bandra-Kurla complex in Mumbai to visit the property exhibition. A lot of them came back disappointed. The reason: most houses were priced way beyond their budgets. And even banks were not offering any special deals, except maybe a 25-basis point discount.
After four heady years, when property prices were moving only northwards, things have started cooling off. And the first sign came a while ago, when builders, who were only making two-three bedroom flats and selling at exorbitant prices, starting talking about targeting the middle-class segment with cheaper flats. And almost a month ago, when builders in Mumbai met before the buying season, they said they would offer cash discounts to buyers. Something that was unbelievable just a year ago.
And it is mainly because the cash flows have dried up for most builders and there is a serious slowdown in sales. Many leveraged ones have to slash prices to boost sales or abandon projects.
Many developers, who had got money from their initial public offers and from private equity funds, have already invested a major chunk in buying additional land at a huge premium. Additionally, banks and financial institutions have reduced lending because of the decline in sentiment. Many of them are tapping high networth individuals at exorbitant rates of 21-36 per cent to complete unfinished projects. No wonder, even the real estate stocks are reflecting the overall negative sentiment.
In fact, since last year, the real estate sector had started feeling the pressure. Along with shooting prices, rising interest rates had made buying a home affordable for many buyers. This led to a fall in sales by over 50 per cent in the last buying season. Even this year, buyers have been visiting exhibitions, seeing properties, but are refraining from signing on the dotted line.
If you are a potential buyer, this is an important period. While there has been some correction in property prices, there is a strong likelihood that there is more to come. Also, home loan rates, which are at 11-13 per cent (floating), will see some reduction. But all that will take some more time.
And, in such times, it is best to wait. This holds true even if you are purchasing your first home. Property prices will come down, sooner than later. In such circumstances, it is best that you do not get emotional about any property and think that you will miss an opportunity. Instead, there could be better opportunities available in the coming months.
Remember that, in the stock market, everyday price fluctuations are a norm. But in the real estate market, things happen slowly, but stay for a longer period. So, it is relatively easier to time the purchase. However, for some reason, if you have to buy a property, then follow some clear guidelines.
Negotiate hard with the builder by quoting a price that can be easily 20-30 per cent lower than the going rate. And don't get swayed by freebies like stamp duty waiver and free car parking. Ask for a cut in the rates or cash discount -- plain and simple. Just two years ago, it was a seller's market, but today it is turning into a buyer's market. That puts you in a significantly strong position. Also, a lower price will bring down your home loan outgo as well.
Another strategy is to offer a higher amount of cash. In today's market, everyone wants cash and that can get you a much better deal.
Most importantly, unlike earlier times, when getting into an under-construction project was considered great because there was a good chance that prices would double by the time the project was completed, today, things are quite different.
While the really big builders will not risk delaying projects, there could be quite a few who could get stuck in this cash crunch. This means a long wait before the project gets completed. In such uncertain times, the best strategy is to go for projects that are completed or are going to get completed in a month or so.
Finally, go for pre-approved projects by banks. For one, this could help you to easily get a home loan. Also, though banks do not directly guarantee the completion of the project, they do a proper research by looking at the paperwork and reputation of the builder.
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