HOPE AND APPREHENSION
While the investor and developer are expecting the value of realty assets to increase with a market turnaround, the end-user is beginning to feel more apprehensive, says Munieshwer A Sagar
The slowdown in the realty market is not completely over, with trading volumes and prices largely stagnant. However, most realty stakeholders are expecting a market turnaround in the short to medium term. The change of government at the Centre with a strong mandate has fuelled these hopes and improved subdued market sentiment.
There are strong indicators that these hopes are influencing stakeholder behaviour. While buyer activity has increased, an increasing number of property owners are postponing sales. Unlike few months ago, now sellers are refusing price cuts and taking stiffer positions during price negotiations. “Earlier, the buyer had an upper hand in terms of price negotiations. Now, it is the seller. More and more people are agreeing to buy at the current price levels. However, property owners are refusing to sell. They expect more value for their property at least in the course of the next few months,” says Ramesh Negi, a local real estate expert. Developers too have either started launching new projects, or are in the process of offering new projects. Their plans are solely based on the assumption that positive realty growth can be expected in the near future.
The interests of the enduser, and most other realty stakeholders such as developers, investors and raw material suppliers, are in conflict. For the developer and the investor to survive and grow, the slowdown has to become a thing of the past. While profit margins and expansion capacity have been declining for developers the investors are facing a financial crisis. They feel that, unless the market revives they will not be able to make an exit and consequently incur losses on their current investments.
Needles to say if prices of real estate increase, the end -user will not be in a position of advantage. Properties in the affordable category are likely to be located in the outskirts of the tricity. Moreover, these areas also are likely to be of inferior quality, say local realty experts. For instance, if a buyer moves from Chandigarh to the periphery town of Dera Bassi then he can expect to cut his housing expenditure by at least one-third. However, he has to compromise in terms of the daily comforts and needs. The infrastructure of such periphery areas cannot be compared to the city. There is severe water and electricity problems and roads are almost nonexistent. Also, the schools and hospitals in such areas are of inferior standard.
Shift in negotiation trends
In the last couple of years, the position of the end-user had improved (when compared to the other stakeholders like developers and investors) in terms of price negotiations. “The enduser was the primary buyer in the market and was leading price negotiations, which resulted in price corrections across the region. Overall, the quality of housing products had substantially improved and even the budget housing segment had started to incorporate features from the luxury segment. And this was not all. Developers were offering special rebates, innovative home financing schemes and freebies targeting the enduser. The end-user benefits will come to an end now, with the developer and bigger investors ruling price negotiations,” says Himanshu Sharma, a local real estate expert and a prospective investor.
While the capital values of the housing sector have undergone correction and stagnation, the rental values have consistently increased. Today rentals are at an all-time high in the tricity region. “This has translated to a challenging situation for most people especially because income levels have not kept pace. The rental burden is forcing people to either move to the outskirts of the city or the periphery,” says Pradeep Pathak, a local entrepreneur living in a rented house in Zirakpur. However, people who were contending with the burden of high rentals had one clear hope during the slowdown- the hope of owning a house. In other words the price corrections had spelt hope to most end-users. The end-user had replaced the investor as the primary buyer in the market and was hoping that the prices would continue to correct. “Ironically, even after two years of slowdown, most of the available housing supply was not in the budget segment. So, now, if home prices start to appreciate again and investor demand picks up the end-user is going to be in a tough situation. His problems will be compounded if the home loan rates are not reduced. Most prospective endusers are tenants and they cannot afford to high rentals and repay loan installments at the same time,” says Pathak.