Should You BUY A Home Now?

For genuine homebuyers who recognise a good thing when they see it and can call it good enough, it has certainly never been a better time, says Anuj Puri, Chairman, ANAROCK Property Consultants

This is, without doubt, a very favourable market for homebuyers looking to purchase properties for their own use. One of the obvious reasons is the abundance of options in all categories of housing to pick from. Also, property rates have reduced considerably across cities. Nevertheless, many fence-sitting buyers are still hoping for further corrections. There may yet be scope for some marginal rate corrections in certain depressed markets – but as we often say in the industry, timing the market is a game only investors should play. There are no guarantees for when, where and even if corrections will occur.

Certainly, a whole country’s real estate market does not witness synchronized corrections like in the stock market, where everyone is affected simultaneously and to the same extent. For genuine homebuyers who recognise a good thing when they see it and can call it good enough, it has certainly never been a better time. The government has also provided several incentives for first-time homebuyers, especially in the budget homes’ category, and developers are rolling out year-round attractions in their keenness to close transactions. Moreover, the plentiful supply of ready-to-move-in properties also benefits homebuyers – the instincts for instant gratification and risk aversion can be satisfied simultaneously.

Guidelines for End-Users

The fact that the current market distinctly favours buyers should not result in rushed purchase decisions. Rather, buyers should: 

✓ Identify the best options in the multitude available on the market
✓ Investigate their final shortlisted options for complete legal sanctity
✓Exercise caution with under-construction projects and look for healthy, ongoing construction activity with considerable on-ground completion progress
✓ Consider only projects with RERA registration in place.

The RTM Advantage

The current preference for ready-to-move options is understandable. Despite many customer-favouring court rulings on this front, the unwholesome aura of delayed, stalled and even shelved projects which had beset many cities markets continues. In fact, the recent and ongoing NBFC crisis has made the situation even worse. Another pain point for under-construction properties has been GST. Ready-to-move properties were cumulatively assumed to be and marketed as exempt from GST. However, a recent clarification confirmed that only ready projects with completion certificates in place enjoy this benefit. In other words, even for RTM properties the availability of this vital document is something that buyers need to investigate diligently.

Guidelines for Investors

Not all buyers are looking to purchase a home for their own use. The market still holds some scope for investors too. However, the dynamics have changed from earlier years and there are some new caveats over and above the previous ones: 

✓ Capital appreciation is a reasonable expectation only in some categories, and in certain high-demand or low supply areas
✓With some exceptions, luxury housing is currently not the best play – the preferred categories for investors currently are lower budget and mid-segment housing
✓The project should be in a well-connected location and have a decent saturation of amenities and facilities. Buyers and renters are spoiled for choice right now. Without public transport connectivity and sufficient social infrastructure, neither capital appreciation nor rental revenue will be satisfactory regardless of other attractions a project has
✓Apart from existing social and civic infrastructure, upcoming infrastructure projects being used to promote a project must be verified with the relevant municipal authorities
✓An optimal ‘entry point’ in terms of ticket size is critical for good ROI – it should be attractive to begin with and, if possible, negotiated further. Investors must also verify historic capital values and rental rates trends
✓The brand value of the developer will also determine future appreciation potential, especially in underconstruction projects. Stronger developers with better capitalisation have superior execution capabilities, are less likely to cut corners on construction materials, and won’t deviate from the committed specifications.

Caution on ‘Value-Additions’

Added attractions and easy financial structuring can be rewarding if the customer has picked the right developer and project, and has fully understood the value proposition. However, financial schemes can also be dangerous if a buyer has not understood exactly how they function and what kind of financial commitments they imply. RERA requires developers to be completely transparent in their marketing outreach, including in terms of schemes and add-ons, which must all qualify as fair and transparent promotional activities. Outright misleading promotions are not allowed under the RERA regime and few players, if any, will resort to them now. Even visuals in marketing collaterals and on hoardings meant to depict the project or its purported lifestyle quotient must be clearly mentioned as ‘representative’ and ‘artist’s impression’.

Nevertheless, many buyers tend to ignore the fine print of a seemingly attractive but inherently booby-trapped payment scheme. Ignorance in the face of information availability is not a legal recourse. If a buyer did not read the fine print and ask the right questions, a developer can technically not be held accountable. He becomes legally liable if there is no fine print available at all, but not if it exists and the buyer ignored it. Here, the guidance of a property consultant can be invaluable. White goods should only be seen as valid attractions if the property itself is of inherent value to the buyer.

If an overall desirable property comes with add-ons like furnishing, modular kitchens, essential fittings and reserved parking space, there is real value. Waived stamp duty and registration charges can obviously also have positive implications on the bottom line. However, none of these should tip the scales towards a purchase decision if the project is in the wrong location, does not have all legal documents such as RERA registration, or there are other inherent locationspecific defects such as unreliable utilities supply and lack of sufficient social infrastructure and public transport options.

Understanding Price Cuts

A price cut on the stated cost of a property is the clearest and most convincing incentive that a developer can give to his buyers. However, a price cut should not divert focus from the real value of the property. Also, price cuts are rarely announced officially but rather earned on the negotiation table. There are good reasons for this. If some developers in a certain locality start announcing price cuts, other developers with similar projects in the same area may have no option but to reduce their own prices to stay relevant in a competitive market. However, at the end of the day, relationships matter in the developer community and very few players will be willing to start a price war. Therefore, announcing a hard price cut is considered the last and least desirable option.

This does not mean that the ticket size cannot be reduced. Buyers can and should negotiate on the final asking rate or get their property consultants to negotiate on their behalf. However, this is only an option if a developer sees serious intent – a seasoned player’s sales team can spot ‘window shoppers’ easily. Also, there is a logical limit to how far a negotiation can go. Developers invest significant capital into land, construction and building permits and need to recover these costs with at least some profit margin. No reputable developer with a good product will sell at a loss – and just ‘breaking even’ is obviously not a desirable strategy in any business.

While even credible developers will negotiate with serious buyers to some extent, only weak players in deep financial pain (and probably wanting to exit the market altogether) will opt to sell at an outright loss. A reduction of 5-7% should be considered an acceptable knockdown on the overall ticket size. To push beyond this is inadvisable and can be counterproductive. In short:

✓There are currently very compelling reasons for endusers to buy homes
✓ Depending on the city and location in question, investors may see wisdom in waiting for further rate corrections
✓Ready-to-move-in homes with completion certificates are the least risky and most tax-efficient bet for end-users
✓ Serious investors with a long-term horizon can make calculated plays in under-construction projects to lock in the lowest possible rate
✓ Serious buyers can look forward to at least some success with negotiation, within reasonable limits.