With the economy slowing down, job losses mounting and salary increments pared to the bare minimum, the real estate sector found itself in all sorts of difficulties in 2013. High property prices and interest rates on home loans also took a toll on affordability.
All these factors led to low demand for housing during the year. For once, however, the buyers enjoyed high bargaining power as builders sought to woo them with price discounts and other freebies. According to the National Housing Bank's Residex, the index rose 1.92-27.06% yearon-year (y-o-y) in the September quarter in 15 of the 20 cities.
However, in 12 of these cities the increase was less than 10%, while in five cities the index declined by 5.56-10.71%. According to the primary market data from PropEquity, a Gurgaon-based real estate firm, developers were able to raise prices by 4-19% in the country's top 12 markets. What these headline numbers camouflage, however, is that developers were willing to offer discounts in the range of 10-15% on their prices. Even steeper discounts were available in the secondary markets.
During the year, prices of ready-to-occupy properties rose even as builders were forced to offer discounts on their new launches. There were two reasons for this trend. First, as the real estate sector slowed down, builders faced a cash crunch. The buyers, who were aware of this situation, pressed home their advantage and demanded discounts. Second, the cash crunch affected the pace of construction and project delays were rampant. To mitigate the risk of delays in delivery, buyers chose to pay ..
In the second half of 2013, developers offered many attractive discounts and schemes to buyers. The latter, however, did not respond to these offers with customary zeal. Ashutosh Limaye, head of research and REIS at Jones Lang Lasalle India, has an explanation. "When prices are falling and you are getting a good deal, the psychology is to wait for an even better deal to come along," he says.
Strategy for 2014
The coming year may see prices correcting only in some locations and segments. A revival in the real estate market will, however, depend on the overall economic situation. If the general elections throw up a more pro-business government, the economy and consumer confidence may improve. If inflation moderates, the central bank may be able to cut rates in the second half of 2014 and home loan rates may follow suit, providing a fillip to the real e ..
The impact of the Land Acquisition, Rehabilitation and Resettlement Bill may not be felt in 2014. "Most developers already own large land banks, which they will develop before acquiring additional land," says Anshul Jain, chief executive, DTZ.
Buyers should make the most of the opportunities available currently. However, they should not postpone their purchase plans endlessly. Since delay in delivery is the biggest risk during a slowdown, buyers must invest with established developers who have the financial wherewithal to complete their projects.
Those wanting to invest in real estate may also take advantage of the current price discounts. However, they must expect to stay invested for three to five years to be able to earn a decent return. Moreover, only surplus and not borrowed capital should be invested in this asset class. This is because if you are hit by financial difficulties and want to sell your house, doing so quickly will be almost impossible amidst this slowdown.