Buy now, realty check won’t last

NEW DELHI: Are you planning to buy a house? You have a window of opportunity of just about six months. The current correction in real estate prices is unlike to last longer. The prices will start upward climb over the next 4-6 months as the economy grows strong, generating new buyers.

A correction of up to 10%-15% in the property prices is deemed inevitable in some over-heated locations of the market (where the demand is more than the supply), says a FICCI survey based on the feedback from a sample of 24 leading real-estate consultancy firms, developers, construction companies and financial institutions.

But 67% of the respondents did not foresee a sudden collapse in real estate prices.

Agrees Kunal Banerjee, vice-president, marketing and corporate communications, Ansal API group: “There is no further correction expected and in the next six months the prices are likely to go up in a steady and gradual fashion.”

Higher interest rates and EMIs coupled with a tendency of restlessness seen among speculative investors to offload are bringing about the present correction in prices in at least some locations.

The FICCI survey says the residential sector is more speculator-driven compared with the commercial sector which is end-user driven. “As the correction continues, the speculators are also getting restless and looking at exiting the present investments,” says Ambar Maheshwari, director, investment advisory, DTZ international property advisers Ltd.

The FICCI survey did not identify the “overheated” locations but Maheshwari explained that there is overheating in certain micro-markets like Hyderabad, Chennai, Bangalore and residential prices in Mumbai and Delhi.

“The real-estate sector is expected to remain subdued to stable in the next six months as it is trying to come out of the recent interest rates hikes by banks and limited availability of funds to developers or even end-users,” says PricewaterhouseCoopers associate director Nitin Gupta, adding that prices of good properties may not fall but may not rise as well over the next few months.

“Long-term investors can adopt the wait-and-watch policy and be on the look out of good property available on good terms,” he adds.

According to the survey, this view disregards the climbing trend in property prices to be a bubble. In the coming four to six months, the climbing trend in prices shall continue ranging from 5%-10% across all categories (tier I, tier II and tier III) of cities.

But as Maheshwari says there is enough liquidity in the market and there are buyers at every price point.

According to Gupta, the survey also indicated that FDI would contribute an increase in property prices as supported by 67% of the respondents.

FDI grants greater liquidity, aids in the corporatisation of the industry, encourages the deployment of latest technology, management systems and transparency in operations.

FDI would make available more money to build on the same quantity of land, thereby leading to an improvement in product quality. The resulting boost to the industry would lead to a shortage of technically qualified personnel, labourers, natural and manufactured materials. These factors are expected to drive prices upwards.

As for the most preferred investment option for a real estate developer, the FICCI survey notes that the residential segment is the most preferred investment opportunity. Lower interest rates, easy availability of housing finance <http://www.indianground.com/finance.aspx>, growing job prospects with rising salaries have given a boost to the residential sector. This was followed by the commercial sector, propelled by the demand from IT/ITES and the BPO industry.

The high risk associated with the recurring changes typical of a business cycle in the retail sector was perceived as a deterrent in spite of an increased demand for quality space from retailers. The least preferred options were leisure and SEZs as the respondents felt that there were ambiguities in the SEZ policy.

Initial public offerings (IPOs) would contribute in making the sector more organised (a view that is supported by almost 90% of the respondents), whereas 60% were of the opinion that IPOs inject corporatisation, accountability and transparency, thereby adding more credibility to projects. IPOs would not have any effect on the property prices, says the survey.

The effect of the rise in interest rates on the sale of residential property generated a mixed response in the survey. Fifty per cent of the respondents felt that the rise in the interest rates is likely to lead to a decrease in the sale of residential property. The reasons for decrease in sales were attributed to the increase in EMI, whereas the rentals have remained constant causing users to more readily opt for rental housing. In addition, the purchase of new homes has added expenses towards registration, woodwork and appliances over and above the EMI. These factors act as deterrents in the purchase of new property.