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July 14, 2000

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A buyers' market

Aparajita Saha

Home is where the heart is, or so they say. But actually purchasing one (a home, that is) relies on more practical factors such as low interest rates, attractive and competitive home finance packages and great tax incentives. And, believe it or not, the home buyer actually has all these factors in his favour.

Interest rates on home loans have never been lower. Real estate financers are bettering one another with their respective loan packages and services. The government has redefined its role from being a provider to that of a facilitator. Real estate prices have bottomed out. Builders are pulling up their proverbial socks and improving their act.

That leaves the consumer faced with one issue: to buy or not to buy? Let's see if we can answer that one.

Property aspect

Where prices of property are concerned, Pranay Vakil, chairman, Knight Frank (real estate consultants) advocates making a purchase. "Reasonable prices and a balance between the construction and land cost make it a good time to buy a house," he opines.

Around four years ago, the real estate market witnessed a crash in prices. Consequently, potential buyers adopted a wait-and-watch strategy. However, a lot of them who had been sitting on the fence are convinced that this is the right time to make a move simply because of the reasonable and stable prices.

Have property prices bottomed out? Unlike the stock market where the sensex acts as a barometer, the real estate market lacks a scientific index to measure property prices. Hence, it is not possible to answer that question candidly. The biggest hinderance to developing an index and monitoring it is the lack of transparency in transacted prices. The 'black' component in the price makes it difficult to develop and utilize an index.

Added to this are other problems such as the lack of a base for statistical estimates, lack of published data, unavailability of dependable data and the absence of macro-figures make index construction very difficult.

In spite of the absence of a scientific and reliable index, experts feel that real estate prices are at their lowest best now and can go only in one direction - upwards. "The volatility with respect to prices has subsided. In fact prices are going to increase in a steady manner due to the spurt in demand," feels Rajiv Jamkhedkar, manager, retail assets, personal banking, HSBC.

According to real estate observers, property prices have come down by almost 35 per cent in the last four years indicating that probably the market has bottomed out. Mathru Prasad, assistant vice president, GIC Housing Finance Ltd (GIC), is of the opinion that the "pricing policy has undergone a change. Earlier prices would be based on what the traffic could bear. Now it's far more reasonable as prices consist of the cost and a certain profit level. Property prices have leveled out."

Yet another point in favour of purchasing accommodation under the present circumstances is that builders are far more flexible now. The reasons for this are simple. "Supply has been greater than demand. It's only recently that demand is catching up. There is competition among the builders to attract consumers," feels Prasad. This has forced builders to becomes more professional and competitive. Adding to this, Jamkhedkar says, "Competition forces developers to give value to customers. Consumers now get ready property as well as quality. This has increased consumer confidence who are more certain of getting a good deal."

"Builders are offering a lot more quality, service and value for money than they did earlier. They have introduced international features and raised their standards to benefit the consumers. The recession has brought about professionalism in the construction business," says Raymond Dastoor, deputy general manager, marketing, GESCO Corporation Ltd.

The financials

Interest rates, which are a prime determinant while purchasing real estate, are also at an all time low. Interest rates were around 17-18 per cent six-seven years ago. Today we see a substantial drop to 12-13 per cent. In fact, these are the lowest rates being witnessed in the past 22 years.

Hence the trend of thought that with interest rates touching such a low, they can only rise. There is not definite answer on this front. Suresh Chandnani, assistant vice president, ICICI, chooses to be cautious and says, "It is difficult to say whether interest rates have levelled out or if they will fall further or rise, but they are at a low right now."

Last but not least, what should ultimately convince the buyers is the presence of a large number of flexible and attractive loan packages, each of them striving to be as competitive and alluring as possible. Real estate financers are emphasising on qualitative aspects such as service that assign utmost importance to the consumer.

Free insurance, waiver of prepayment dues, extended tenure of loans and flexibility with respect to loan repayment are just some the features used to lure consumers.

The government has adopted an encouraging stance, inducing an increasing number of people to go in for self-owned houses. Budget 2000-01 raised the tax deduction on interest on house loans for self-occupied houses from Rs 75,000 to Rs 100,000. Consequently, a number of housing finance players recorded a surge in the number of disbursals. Mahesh Shah, manager (communications), HDFC, states, "If an individual belonging to the highest income bracket avails of a loan, he can save Rs 34,500 per year."

To put it in a nutshell: the consumer never had it so good!
So back to our question: to buy or not to buy?
The verdict: Go for it!

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