Property buyers are back

It’s almost a year since Gaurav Mahindra, 31, a young army Major, and his wife Ashima have been on the lookout to buy a house— a three-bedroom apartment in NCR, Pune or Bangalore. “I fear that if I don’t buy a house within the next two years, I may never be able to afford one as speculative investment is going to return to the real estate market in a couple of years,” he says.

Mahindra’s two year time frame may be a little too lenient, judging by the calls being made by international property consultants, housing finance institutions, and of course, developers themselves— all of whom are chorusing that the market has bottomed out. A key pointer to that is the rise in home loan disbursals in the last quarter.

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“For demand for housing loans to pick up it was necessary that the cost of acquiring a house came down significantly from its 2008 levels. And fortunately we have seen that happen between October 2008 and March 2009,” says Renu Sud Karnad, Joint Managing Director, HDFC. The bank has witnessed a 45 per cent increase in individual loan approvals in Q2 2009 compared to Q1 2009.

In fact, in certain markets like Mumbai, Delhi and NCR, developers have actually increased prices by around 5 per cent. “It’s either a short- term gain developers are playing for or they are testing the market response. So, even if there’s a further downside in the prices, it will be limited to a rollback of these hikes,” feels Ghulam Zia, National Director, Advisory Services, Knight Frank.

Zia’s assertions, however, offer little solace to the likes of Arjun Chatterjee, a Senior Manager with a media firm. The 28-year-old, a Mumbai resident for 5 years now, rakes in about Rs 17 lakh yearly. “With the correction that happened, many potential sellers shied away from offloading their holdings, even though there are plenty of buyers,” laments the veteran of house hunting, who confesses to have looked up 150 apartments till date.

His requirement: a one-BHK apartment for Rs 40-45 lakh in Mumbai’s Andheri (West) suburb with his contribution about Rs 10 lakh. And while he hasn’t set himself any hard deadlines to finalise his purchase, he knows that hoping for any further price corrections will be futile, unless there’s a re-tanking of the stock market to sub-10,000 levels.

“While it’s difficult to time the market if you are a speculator or an investor, for end users, this seems to be as good a time as any other to make their purchase as most segments appear to have bottomed out—the only exception being the luxury re-sale market where we expect a further correction of 15-20 per cent,” points out Shruti Gupta, Head of Country-India, Hamptons International, a real estate consultancy based in Mumbai.

Ratna Verma, Gurgaon

Interior Designer, with husband and son. Family Income: Around Rs 35 lakh per annum What She Bought: A 1,628 sq. ft fourbedroom apartment in Unitech Sunbreeze, Sector 69, Gurgaon, for Rs 53 lakh on construction-linked payment plan. When: In 2009 Why: “I feel this is a good time to buy as prices have come to affordable levels. Besides, the economy appears to be getting better"

Arjun Chatterjee, Mumbai

Senior Manager Income: Rs 17 lakh per annum What he’s Looking to Buy and Why: A one BHK apartment for Rs 40-45 lakh in Mumbai’s Andheri (West) suburb. Chatterjee says he has looked up at least 150 apartments but couldn’t find one of his choice. But with the market bottoming out and developments galore, his luck could change.

Understandably then, the hordes of hoardings announcing new projects by real estate developers have all been in the affordable housing segment, broadly defined as houses above Rs 10 lakh but below Rs 40 lakh. “Real affordability may be defined as the price calculated after multiplying the median income of 60 per cent of a city’s population with the affordability ratio—calculated as the ratio of the house price to household income, which should ideally be less than five,” explains Abhisheck Lodha, Director, Lodha Group.

Translated, it means the upper price point is elastic, depending on the city and the location—for a city such as Mumbai, the upper limit could stretch till Rs 50 lakh. Of course, affordability itself is a relative term—sauce for the gander may not be sauce for the goose. “Affordability is conceptually a misnomer as every housing is either affordable or not. Having said that, if you can service your EMI with up to one-third of your income, then the housing can be termed affordable,” argues Harshvardhan Neotia, Managing Director, Bengal Ambuja Housing.

This recent glut of Rs 30 and 40 lakh houses in the market means that people who dreamt of owning their own homes but never imagined that it would become a reality are finally finding their fantasies within reach. Some examples of these projects: Omaxe New Heights in Delhi NCR’s Faridabad region, with starting prices of just over Rs 16 lakh for a 850 sq.ft apartment, while the neighbouring Imperial Estate by SPR Buildtech, also in Faridabad, is offering apartments at a minimum rate of Rs 41 lakh for a two-bedroom unit.

However, buyers beware: most of these affordable housing projects are in locations where infrastructure is next to non-existent, without even a semblance of an approach road present. What they are banking on are upcoming infrastructure projects like expressways that will inject some sheen and gloss, not to mention capital appreciation, to their projects.

So, are these new launches finding any buyers? Developers in most cases claim a roaring success of their initiatives though their claims can’t be independently verified. Market intelligence suggests that while there are indeed buyers in the market, in a majority of the cases, they prefer projects that are ready to move in or nearing completion. “For a buyer, an apartment is all about touch and feel—so obviously there’s a higher comfort factor for under-construction projects,” says Gupta of Hamptons International.

According to a recent Knight Frank report on affordable housing, based on a survey of 1,400 respondents across the seven cities of Delhi NCR, Mumbai, Pune, Bangalore, Chennai, Hyderabad and Kolkata, affordable housing largely caters to the people in the income bracket of Rs three lakh to 10 lakh. Real estate developers as such are clear about their price points in their new product offerings.

“We are catering to the first time buyer, earning a minimum of Rs 25,000 per month. Low cost housing is not what we are interested in at the moment as providing a quality product for less than Rs 10 lakh is not feasible for us,” acknowledges Ashish Puravankara, Director, Puravankara Projects. Affordable housing, he adds, is more about efficient layout than just nipping away at the unit area—for instance, doing away with the entrance foyer or lobby rather than altering the size of functional spaces like bedrooms.

Besides, developers have a credibility problem when it comes to adherence of timelines for possession of their projects. While many existing projects are running behind schedule, realty developers have no qualms in launching more under different categories—mostly termed “affordable”. The question, of course, on top of the buyer’s mind is whether he can afford to trust the developer to deliver on time the new lot of projects?

“The developers’ conviction towards affordable housing appears very questionable. These projects were announced because other revenues dried up and there’s a possibility that once the economy starts to roll again, the developers’ focus may shift back to premium segment housing,” predicts Zia of Knight Frank.

Countering Zia’s argument, R. Nagaraju, Vice President, Corporate Planning and Strategy, Unitech, vehemently denies that affordable housing is a stop-gap opportunity till the business climate improves. “We will continue to do premium segment housing but they alone would not be able to absorb the land parcel. Even if the market revives, you cannot have millions of square feet developed in the premium segment in a year’s time. The bulk of sales in the future will come from the affordable segment,” he asserts. Of course, the standing joke is that while the prices will fit your wallet, the sizes will fit your pocket. For the sake of the buyers, let’s hope the joke’s on the sizes and not on prices.