Are you planning to buy real estate in India ? Have you kept aside money for purchasing that dream home this year ? If yes, then read on. Real Estate Outlook in India does not paint for a very sunny side of things in your overall financial planning. A lot of factors are screaming out at you to be careful. Be aware of them so that you can plan it right – after all, a home is the most expensive and important investment class in one’s portfolio.
Real Estate Outlook in India
Some ideal buying conditions for a home is low to average price of residential units, lower interest rates for carrying out a mortgage and confidence in the ability of the builder to deliver.
The price of residential units has actually been on the rise throughout the year. When homes become more expensive, buyers postpone their decision of investing in real estate. That is what happened towards the end of last year when the festival season failed to infuse any sales viagra in customers. As a result, many developers are stuck with units of real estate that they would have ideally liked to roll off.
Surprisingly, the price rise of residential units is not directly related to the sales of project units which have actually nose dived. But the developers have kept the prices of units artificially higher. This is obviously not sustainable for them in the long term. In order to clear the pending units, builders will reduce the prices eventually.
As the below graph shows, the unit sales data does not paint a very nice picture for developers. Sales are either stagnant or have come down over a year for cities like Pune and Hyderabad. This will obviously hit the bottom line of real estate companies hard. With more supply hitting the market and old units not being sold, builders will be forced to look at reducing prices.
Unit sales across cities
The interest rates have begun to rise and home and car loans have become more expensive this January. This will thwart investors who will find it more difficult to carry the burden of an expensive EMI. They will postpone their decision of buying into real estate. This will contribute towards more inventory being piled up.
Real Estate Outlook in India – How to Purchase ?
First things first – if you are looking for buying a house for investment purposes, look no further. This is not a year for that.
If you are looking to buy a house for the short term, stop looking. Real estate cannot be a short term investment avenue in your goal based investing strategy.
If your purpose is to buy your first house, then real estate could provide you the right opportunity.
With interest rates on the rise and inventory pile up, builders will be forced to reduce prices. Wait for the correction to set in. It should happen before the festival season begins in August-September.
Play one builder against another by choosing more than one project and bargaining hard. A developer will succumb to your demands if he knows he is losing a customer to a peer developer.
Prepare your 20% down-payment of the house. Gone are the days when one could pay 5% or 10% and get the rest financed by the bank. You can potentially get only 80% of the price of the residential unit from the lending institution, your ownership of 20% needs to be paid by you.
It’s most safe to scout for ready to move in properties and even resale properties. You get rid of the waiting time of development where you carry the risk of the builder going bankrupt causing huge delays in project completion.
Pitfalls to Avoid in your Purchase
Small developers will come out with more freebies and schemes. Beware of them. Remember that gifting a LCD or a car with a house is a gimmick that works – only for the builder though.
Small developers and fly by night operators could shut shop and run away taking their money with you. It’s always best to park your money with the best builder in town – you will obviously have to pay a premium for choosing a quality builder but you need to choose between safety for your money – unless you tend to visit Las Vegas twice a year.
Make sure your EMI is well within your budget. With interest rates rising, avoid teaser rates and fixed interest rates. Opt for floating home loan rates so that you can benefit from the correction in rates when they happen. But make sure you don’t keep the sum total of all your loans more than 40% – 45% of your net take home salary.
After the 2008-2009 economic slowdown, the real estate companies have found it hard to raise money to invest in their projects. The latest housing scam reveals the nexus the builders have created – this will make it hard for more developers to get hold of money from lenders and this can potentially lead to project non-completion or delays . So watch out.
Your purchase of real estate is going to be a bumpy ride as you might have some choices and challenges along the way. But make sure you do due diligence – you don’t want to be caught with the wrong project in a year that looks right for your first home purchase.
When they say quality, eco-friendly house, they mean it. Supertech Limited makes full use of wind and solar energy, and use natural light and LED’s to cut cost and emissions. With futures like CNG powered backup stations, in-house garbage treatment (an unexplored western concept). They put emphasis on the use of natural resources to reduce the ecological foot print and carbon in emission.
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The MOST important point worth mentioning is to not buy a house that is under construction.
Both big and small builders are well known for launching new schemes using the funds from the old ones even while the old ones are unfinished. The consumer suffers, paying pre-EMIs with no end in sight…
Alternatively in your sale agreement, don’t agree to the default slab-wise payment scheme defined by the builder. Ideally you should pay the last 20% only on posession (which includes the necessary clearances). Walk away from an under-construction project if the builder doesn’t agree to this…
@BC, Agreed !
Financial Institution also started releasing money based on the completion of project, they are not releasing whole at once if project is not complete. This is good and also the buyer has to pay bit small EMIs in starting :).
@Chirag, Yeah, indeed it is a good move. But don’t you think real estate industry in India needs to be more transparent ?
Yes Radhey, I agree. It must be transparent.