Don’t defer buying a home as prices are unlikely to go down: CREDAI President

In the coming months we are likely to see a turnaround in the sector with most unorganized players pulling out and leaving professional, established brands to drive the sector. The recent moves have also restored consumer faith in the sector and fence-sitters are slowly realizing that timing is right for a purchase.

This will result in a considerable increase in demand as pent-up demand would come to the forefront and engage with the intent to consume. However, the supply will take time to match this demand, as the sector is inherently time-consuming. This will result in an appreciation of the sector as a whole. With the commercial sector already growing strong, 2017-18 will see the residential sector take center-stage and be the driving force of the sector.

How do you think real estate prices will move from here on? Could there be a further fall from present levels?

I feel prices in most markets have bottomed out and stabilised with little or no margin for further reduction. Due consideration also has to be given to the impact of Goods and Services Tax (GST) on the sector. While it will help streamline the sourcing and pricing of raw materials, it will not offset the costs of construction by too large a margin.

At the same time, the impact of RERA will result in projects being shifted to later dates as developers will be working towards compliance. This will result in a further shortage of housing stock where there is a shortage of 20 million housing units in the 8 metros and 40 million units in Tier 2 & Tier 3 towns, while the demand is constantly growing, albeit, subdued. This imbalance between demand and supply will result in an increase in prices of properties in the main markets.

Pradhan Mantri Awas Yojana (PMAY) for MIG housing where the interest subsidy works out on a NPV at approximately Rs 2.2 lakh will really drive the residential real estate market and this will create a new activity in this space. Along with PMAY and the exemptions provided on a housing loan in the Income Tax Act, the effective rate of interest for a home loan of about Rs 35 lakh, works out to only about 5 percent, which improves the affordability factor for residential projects and will further elevate the demand in the sector.

Recent reports have also indicated that the availability of retail spaces has also gone down and commercial supply is just on par with the demand. Thus, the impact will be felt on all segments in terms of pricing. Until and unless we reduce the costs of land acquisition which is the largest cost element in construction and facilitate easier capital creation, the real estate sector will not be able to cut costs considerably to reflect in prices.

But buyers appear to be waiting for further price correction and fall in interest rates to firm up purchase decisions…

Yes, a lot of buyers were waiting for the prices to fall and the interest rates to follow in the same direction especially due to demonetisation. While the influx of funds in the banks due to the move has resulted in a considerable decrease in the interest rates, there is still room to go further.

However, low interest rates have improved affordability of housing for most income groups and have made the purchase of property viable. To wait further in the face of reducing stock and imminent RERA requirements, will be a fallacy on their part.

In terms of pricing, after the initial expectation of a price drop, the misinformation cleared and the fence-sitters realised that the timing was right. We are already seeing growing interest, specifically for the established and reputed developers.

The conversions of this interest does take time and that has always been the case of real estate, but the move is indicative of a positive turnaround. A lot of consumer faith was restored post demonetisation and will be further amplified when RERA comes into effect.

At the same time, a lot of information regarding housing inventory, prices and the compliance burden in the coming months has ensured that the consumer is aware about the possibility of a price rise in the future due to growing demand and shortage of supply. This has resulted in present upward mobility that we are seeing in consumer interest.

What are developers doing to comply with the requirements of the Real Estate Regulation Act (RERA)?

We are seeing most developers gearing up to work towards RERA compliance, which has reduced new launches in most cities to avoid any administrative hurdles post its implementation. While this is happening, we are seeing a return of consumer interest in the sector with the lowered interest rates and growing consumer faith.

This will result in a reduction of the housing inventory in the coming months and with a slowdown of launches, which will translate to a reduced supply later in the year. As an investor or a consumer, it is imperative that one understands these factors before assuming that a considerable inventory will be available.

Most developers are focused on compliance as well as completing most projects and selling them before moving onto newer ones which is going to reduce the inventory and thus should not considered a reliable measure of the sector in the long-run.