Things to keep in mind if you want to buy now
Prospective homebuyers should introspect and ask themselves why they want to buy a property now. They could start with simple questions like if they are planning to buy in order to upgrade their present accommodation or looking for financial security because the stock markets are not giving high returns as before and they have an assurance that real estate is a long term asset.
The second question to ask is whether you are in a position to service the financial obligations that come with buying property – the down payment, the EMIs, operating costs such as maintenance and insurance, and property taxes – without dipping into your savings. And, most importantly, are you sure of your job after COVID-19? Things may be relatively better if you are a double income household.
“If you have enough reserves for emergencies such as retirement and a job loss, then you may think of considering buying a house,” says Aashish Agarwal, Senior Director – head consulting services at Colliers International, India.
Another question to ask yourself is to do with the expectations on returns on the property that you intend to purchase. If one were to look at NIFTY returns over a 10-year-period, it had delivered about 74 percent that works out to about 5.7 CAGR.
“Investors could lose about 80% if they were to invest in a volatile asset class compared to real estate which is a long term asset,” says Agarwal.
Homebuyers should also calculate the interest and the tax benefits they would get, especially if they are first time homebuyers and have plans to invest in an affordable housing product, he adds.
Prospective buyers would also do well if they were to compare the current COVID-19 crisis to the Economic Meltdown in 2008.
“The present financial crisis is different from 2008. When the crisis hit the market, the real estate market was booming, property values were appreciating every quarter. Coronavirus pandemic has hit us at a time when the market has been in a slow mode for the last five years. At best, the recovery going forward can be further delayed,” he explains.
Who is buying in the current market?
Buyers who would finalize a property purchase during the lockdown may not be a large pool.
Most buyers in the market are those who had been sitting on the fence before the pandemic stuck which means that these people may have done their due diligence, paid site visits, and evaluated the market well enough but had all along been waiting for prices to fall further.
“These are the people who would potentially close the deal at this point in time as their ability to negotiate with the developer is much higher in the current circumstances,” says a real estate expert.
Non-resident Indians could be another category. The rupee has depreciated close to 10 percent to a dollar and there is discounting on the property due to sheer rupee depreciation. For this segment, COVID is a great opportunity to at least book online.
The rupee’s depreciation against the US dollar has been a factor of considerable interest for NRIs considering Indian real estate as the most sensible investment option. ANAROCK’s consumer survey for H2 2019 indicated that for 68 percent of NRI participants, real estate was considered the best asset class for investment, followed by 16 percent favoring stock markets.
As worrisome and troubled as the current situation is, it is also a highly opportune time for NRIs to invest in Indian real estate and book profits on the back of currency depreciation, record low prices, and organic impending growth of Indian real estate markets, Anarock said..
The third segment could include the investors who, having burnt their money in equity, may not be looking to pick up some stressed real estate assets. “These investors are not particularly interested in the configuration but concerned more about the long term asset and the returns it would fetch them,” says a property broker.
How should you negotiate?
Before embarking on the course of serious negotiation with a real estate seller, a buyer needs to do thorough homework. This would include: a background check of the builder/seller, the prevailing market conditions, the pros and cons of one’s own budget, and the qualities and condition of the property one intends to buy. It may help to get a clear picture of his financial situation with the help of informed consultants and brokers.
Also inquire about the unsold inventories stuck with the builder. Study if the listed prices on the builder’s website and other real estate websites have decreased over time, and by how much. Such pre-knowledge will help in establishing beforehand if the builder is doing a distress sale or is ready to wait for the right buyer to pay the price that he expects.
The potential for strong negotiation increases in the case of an older project with several remnant units not getting sold, or if the builder is in a tough financial situation and needs to liquidate his investment. The bottom line is – before negotiating, do your groundwork about the project, its developer, his overall credibility and track record of previous projects, the location and property prices in the vicinity, and the overall trends in the property market.
Today’s market is a buyers’ market and there are several properties a buyer has to choose from. Therefore, the probability of extracting major discounts and attractive deals from the developers is high.
A buyer could perhaps start with negotiating at a price which is 10 to 15 percent lower than the quoted selling price. “The opening gambit should clearly convey that one is genuinely interested in closing the deal. One must position oneself as a serious buyer and discuss the execution of the deal, rather than contemplating options in front of the developer. In short, it is important to convey that one has already evaluated the options and is looking to close the deal provided the pricing is right,” says a real estate broker.
As far as possible, buy property from a branded developer. In times such as today, pay a token amount and block a unit if you have shortlisted one. You could visit the property once the lockdown ends.
Check the RERA website for details on project approvals and the timelines.
Preferably sign a deal with prior loan approvals in place.
“Most mature buyers look for a good deal after they get their loan approvals done. For an average buyer, this is not a good time to experiment. Banks too may not be lenient at this point in time,” says a real estate consultant.
The current market does offer several opportunistic deals. A buyer may have zeroed on a property being offered at an over 20 percent discount because the seller may be under deep stress.
“Just because something is being sold for a song does not mean that you rush to sign the deal especially in the secondary market. If there are title issues, other claimants, obligations pending on the parties, you are stuck and this is not the time. While this is a good time to look for opportunities, it is not a good time to take risks,” adds Agarwal.