Everyone dreams of owning a home, a place which is your own and where you can be yourself.
Are you wondering whether this is the right time to buy your home? We get you some answers
on this here. Read on to find out more.
There are mixed views regarding the real estate sector. While some reports indicate an
increase in volumes and prices, some indicate a situation where the supply has far
outstripped the demand. As per a leading business daily, nearly 40 percent of the affordable
housing projects are left unsold.
Recap
FY09 proved to be a tough one for real estate sector with conditions not being conducive for
both buyers and sellers. Lower demand due to slowdown in the economy and deferment of
purchase plans by customers led to pricing pressures. Prices had declined in the range of 30
to 50% during FY09. This coupled with higher interest rates and lower disbursement of loans
by banks due to rising delinquencies further increased the problems. As we all know, the
real estate sector is sensitive to movements in interest rates. The demand is higher when
the interest rates are lower as the EMIs will be lower and vice-versa.
Recent scenario
An upside cycle, but not really at the crest itself. Until recently, the market observers
felt that the sector was a sinking ship but thanks to the support by the RBI, the housing
sector in India is experiencing an increase in demand (though not at its peak), as seen in
the last couple of quarters.
In fact, SBI, the largest player in the Indian banking space, has decided to extend its 8
percent home loan scheme till March 31, 2010, just a day before it was due to expire. Other
players in the space, particularly public sector players have followed suit with their own
share of attractive loan schemes.
Even private banks are focusing on the housing loan space due to low credit off take by
corporates. The developer is also targeting the housing sector with strong focus on
affordable segment as well as a gradual shift to ensure delivery and promotion of previously
launched projects at more attractive prices.
According to some developers, the buyers are back! The disbursal of home loans for new
registrations has seen a 20% surge this quarter against the previous quarter. According to
an IIFL report, in Mumbai, prices are up 25%-40% from the bottom in early 2009, while in
NCR, the corresponding figure is 15-20%.
As far as the pricing of property is concerned, sellers (builders) have a key role to play
here. During the downturn, property rates fell to the tune of 30-50% depending on the area
on account of twin factors - fall in demand and need for cash by builders. With the balance
sheet of real estate companies becoming stronger on account of restructuring, and money
increasingly becoming available through QIPs and even bank loans, builders will resist fall
in property rates.
In fact, in several areas, rates are inching upwards. For eg: In Mumbai, vacancy levels have
fallen to about 12% from 14% in 2QCY09, even though supply has shown a spurt. This has
reduced the overall available stock in the city. The rentals have become stable. If demand
continues, then we expect rentals to strengthen going forward.
India's GDP grew by an impressive 7.9% in the September quarter, the fastest in the last
one-and-a-half years. The economic activities like construction (6.5% YoY), real estate and
business services (each 7.7% YoY) also reported strong growth numbers during the 2QFY10.
This gives an indication of some pick up happening in across sectors.
Though the demand from commercial space is still cautious, the rentals of retail space have
stabilised in most of the country. As per Cushman & Wakefield retail report, mall vacancy
has shown a marginal increase from 17.3% in the second quarter (April to June) to 17.5% in
the third quarter (July to September). Further, as per the report, the retail sector is
expected to see a demand of around 43 mn sq ft, mostly concentrated in the tier I and II
cities. The demand for the hospitality sector is expected to be around 690,000 room nights
between 2009-2013. Also with IT sector seeing an improvement in the coming quarters, the
demand is expected to inch higher.
On the interest rate: With recession woes looking to end and strong growth witnessed across
sectors, the chances of the RBI raising interest rates in the future are higher. In fact a
whiff of something likely to happen on this front is already becoming apparent and perhaps
will kick in around March-April 2010. Further, with higher liquidity and poor monsoons,
inflation concerns are evident. So everything indicates that the interest rates could only
go up from here.
What should one do?
While this may sound as an apt opportunity for buyers to capitalise on the prevailing low
rates of interest by striking a deal, several considerations need to be made with regards to
money.
Being a long term investment, one must definitely check if he/she can afford the long term
loan repayments. Also, consideration to a stable job, provision for contingencies and
personal finances should be looked into before buying the dream house.
If one buys a 500 sq.ft flat in Navi Mumbai at a cost of Rs 3500 per sq ft, the total cost
would be Rs 1750, 000. At an 8.5% interest for 15 years, the interest rate would be Rs.
13,51,940. If the prices go up to Rs 5500, the cost jumps by 57% to Rs 27,50,000.
Thereby one pays the interest of 21,24,400. So if one has the fund resources to tap into and
feel they can avail the attractive interest rates at this point in time, then by all means
they should go for their dream home now, putting it off for later could mean parting with
more money.
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