Indian Residential
Property - Examining the 'Wait and Watch' Syndrome
by Mr. Ashwinder
Raj Singh, CEO - Anarock Property Consultants
We
keep hearing of the 'wait-and-watch' or 'fence-sitting' syndrome on the
residential property market, which basically means that a significant number of
people who want to buy a home are not doing so. Property buyers tend to wait
and watch rather than buy for two or three reasons.
One would be that they are
waiting for a 'price correction' - a meaningful reduction in the prices
developers quote for their properties. Regardless of whether their hopes are
realistic or not, this fence-sitting' dynamic is a definitely a fact.
It
is also frequently said that buyers may also be waiting for lower interest
rates on home loans.
This is only partly true. While they certainly play a role
in overall buyer sentiment, especially in the affordable housing segment, lower
interest rates alone are not a sufficiently compelling rationale for aspiring
mid-range housing buyers to abandon their 'wait-and-watch' mode.
If, however,
the lower interest rates coincide with a hard discount or some other
money-saving offer, many people will certainly come onto the market with a firm
intention to finally buy a home.
Buyers
may also 'sit on the fence' if the city they want to buy a home in is
experiencing some kind of political unrest or other kind of turmoil. A
hesitation to invest in a property for this reason is obviously beyond the
powers of the property market to address, and will usually change only when the
core problem is resolved.
Rolling
the dice
As
for those who are waiting and watching for a price correction, they are
engaging in a calculated risk at best. Such fence-sitting is often the result
of confusion rather than certainty.
A buyer may have been receiving inputs from
many different sources, some of which predict that property prices will come
down soon. If they do, the buyer would have incurred a loss by buying too soon.
If they don't, the buyer would have missed the optimal 'entry point', and
certain flats which were shortlisted earlier may suddenly be off the market.
The
question is whether one should attempt time the market. The answer depends on
who is asking the question. If an investor asks it, there are still at least
two answers – wait and watch (prices may reduce in your location) or buy now
(your identified location will not correct, only appreciate).
If a first-time
home seeker asks it, the answer would be, “buy what you can afford, when you
can afford it.”
Property
in a growing economy always appreciates over the long term - this is an
immutable fact of the market. Property prices in a more or less healthy economy
never do a complete about-turn and start marching in the opposite direction,
though they will occasionally deviate from ‘learned’ market predictions.
These
are not corrections in the commonly understood sense of the term – they are the
minor course alterations that any market must undergo in order to adapt and
stay alive.
In
fact, whoever buys a house anytime, anywhere in India, does so with the
knowledge that it is not only a place to live in, but a sound financial
investment. If it were not so, India would be a predominantly renting nation
like the US.
Where
the ‘Real’ Correction Lies
Developers
will usually not come down on their asking rates, but they may offer discounts
to serious buyers at the negotiation table. They may have a
higher-than-anticipated holding capacity and sufficient sales volumes through
negotiated deals, which makes it possible for them to hold on to their prices.
Sometimes, depreciation of the rupee has caused NRI property purchases to
increase in the larger cities, again making it possible for many developers
with good projects to hold on to their rates.
Today,
many freshly-launched and under-construction projects in the early stages of
completion are being sold at lower rates than comparable projects in similar
locations in earlier times. All this boils down to an ongoing correction of
sorts.
However, it is not possible to predict when developers will officially
come down on their rates. It is a function of the market. As long as unofficial
discounts to serious buyers serve the purpose, it is unlikely that there will
be an official correction of prices.
Certainly, completed projects in good
locations which are duly registered with RERA and have occupation certificates
will not see price corrections, as these are the projects for which there is
the highest demand.
Zeroing
in on the right strategy
In
other words, it is unwise to wait for a formal price correction, since prices
may not reduce and could even increase in certain locations and projects.
Also,
the best options may be snapped up. The best course of action for
'fence-sitting' buyers today is to short-list the properties they are
interested in, ensure that they are RERA-compliant (and, in the case of
under-construction projects, have a reasonable completion timeline), negotiate
the best possible deal with the developer and go in for purchase.
This
may not be the best advice to investors, who have sufficient reason and also a
sufficiently large horizon with which to try and time the market. For buyers
intent on purchasing a home for personal use, however, waiting and watching in
the current market environment would be counter-productive. There has never
been such a generous spread of ready-to-move-in options across markets, and
prices have bottomed out. Simultaneously, interest rates have dropped from
10.75% in 2008 to as low as 8.75% today. To top it off, most developers have
unleashed lucrative offers which result in further savings on the bottom line.
The
highly buyer-favouring market environment prevailing today has certainly not
been lost on fence-sitting buyers. We have seen an increase of 20-25%% in
firmly-decided buyers in the last six months alone. For others, however,
waiting and watching has become something of a chronic habit that is hard to
abandon.
The next 12-18 months will be a vital period for the Indian
residential property sector as it waits for a larger chunk of buyers to hit the
market and finally buy the homes they have been longing for.
About the author..
Mr. Ashwinder Raj Singh, CEO - Anarock Property Consultants
Arun Chitnis
Public Relations
ANAROCK
Property Consultants Pvt. Ltd.
(Formerly
Jones Lang LaSalle Residential Pvt. Ltd.)
M
: +91
9657129999
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