Wanted: A permanent address

Written by Garima Pant | Updated: Jan 26 2009, 05:05am hrs
Shirin and Arnab Rai have been married for over a year now. But the gifts they received from their friends and family are yet to come out of their elaborate wrappings. The reason: the Rai couple live in a rented accommodation in South Delhi and dont want to clutter that space with anything that will not remain intact when they make a move soon into another rented accommodation. Whats the point in taking those new things out when we know we will have to pack them again within a few days. It is best they remain at my parents place till we are able to buy our own abode, says the couple. They are yet to find a deal that fits their budget. We were hoping that the property prices will slide down, but that is yet to happen to make me interested. For now its back to packing and moving, they add. The global financial crisis and the subsequent slowdown in real estate sector have led to a slowdown in investment activities across all segments of investors and most of them are holding off their investment plans at present.

A house on time...

The current real estate scenario has been described as a buyers market by industry experts who are hoping that the buyers will time their purchases accurately before the inevitable upswing. But this phase, expected to bring about a surge in the downtrodden market, has failed to get in the requisite numbers owing to a lacklustre response by the real-estate developers.

It is now definitely a buyers market, though many developers have failed to realise this and act accordingly, says Anuj Puri, Chairman & Country head, Jones Lang LaSalle Meghraj. This is an area where builders and developers can really improve a lot in terms of managing customers and their queries, especially existing customers as they spread word of mouth, feels Vineet K Singh, Business Head, 99acres.com. He adds, Unless all builders, developers and brokers have clarity over this they will continue to lose customers.

Developers on the other hand do agree to the market being favourable for a buyer and also emphasise on providing the best of the available options. Most developers have squeezed their margins to the minimum level, and hence we dont see any further price correction in the real estate. The projects are therefore available at the best price to both end users and investors, says Rohtas Goel, CMD, Omaxe, Chairman, NAREDCO. Navin Raheja, MD, Raheja Developers adds that since the interest rates are low, the developers who never bothered to give any discounts are now negotiating. Based from my experience of last 30 years, I have seen five such property cycles in my career. I would say that this is the lowest point of the current cycle, when developers are trying to negotiate and pass on the discounts, he further elaborates.

Sachin Sandhir, Country Head and Managing Director, Royal Institution of Chartered Surveyors (RICS), feels that the old real-estate project prices have come down as there is a lot of unsold inventory, new projects and ongoing projects, which will be price corrected with realistic values. However, the Return On Investment (ROI) may not be very high for a current buyer. The recent measures by the RBI and banks lowering interest rates will typically help boost demand in housing segment mostly and developers can look for an increase in sales in this segment especially in tier-II and tier III towns, he adds.

Shifting focus

Residential property prices have been giving the budget buyer, comprising the bulk of the market, a hard time. After crashing in the mid-90s, it was only after 2002-03 that the prices started heading north again. The rapid escalation was brought to a halt by the global economic meltdown that crashed volumes in the Indian realty market to a trickle. So much so that the entire focus of the market has now shifted to the concept of affordable housing, a concept that has become the most-sought after by the real-estate community. But is affordable housing a reality or just an eye-wash

A government panel was set up by the housing and poverty alleviation ministry to look into the housing needs of the economically-weaker section, lower-income group and middle income group in early 2008. In its recent report the panel has hinted at adopting the model of south-east Asian countries, like Indonesia towards providing affordable housing. The panel has advocated the model adopted by the Indonesian government. In Indonesia, developers are required to compulsorily build a minimum of three middle class houses and six simple houses per HIG housing unit. The compound annual growth rate of 26% of the housing sector was not able to fulfil the housing demands of this section. As per the National Urban Housing and Habitat Policy, there is a shortfall of 24.7 million homes for the poor in India.

Sandhir feels that high land cost, constituting nearly 35% of project cost, has been a major obstacle affecting the viability of affordable housing projects. As a result, developers have not been keen on this segment due to low potential margins, he adds. However, in the wake of the current measures by RBI, lower interest rates, and market potential, there has been a mindset change for developers who are shifting their focus to make smaller flats. 2009 will be the year when affordable houses will be available to the middle and lower income groups in sufficient numbers. This would be possible through a combination of reduction in home prices and fall in home loan interest rate, says Bhim Yadav, CEO, Falcon Realty Services.

But not all are rooting for affordable housing. Kumar Gera, Chairman, CREDAI, feels that the term affordable housing is being used loosely in India. The approach towards affordable housing is not right and even the government has not been able to define this concept and is being considered to be a no-frills attached segment of housing, says Gera. He adds that providing houses for the masses should be done under normal circumstances and not just taking off from the provisions of the economic stimulus. The focus has to be across the board. This just looks like a pre-election propaganda to me, adds Gera.

With the central and state governments mulling over low income and middle income housing schemes, it remains to be seen if prospective property buyers will be able to walk on the long road to affordable housing.