Buyer in wait and watch mode

De­spite price cor­rec­tions and home loan rate cut, buyer cau­tious about en­ter­ing re­alty mar­ket due to poll out­come un­cer­tainty, bud­get in­cen­tives

Hindustan Times (Chandigarh) - Estates - - ESTATES - Mu­niesh­wer A Sa­gar mu­niesh­­gar@hin­dus­tan­

Sev­eral de­vel­op­ments in the past few months such as prop­erty price cor­rec­tions and home loan rate cut have in­cen­tivised the re-en­try of the buyer into Pun­jab’s hous­ing mar­ket. Buy­ing a home has be­come cheaper be­tween 2011 and 2016. Af­ter the de­mon­eti­sa­tion in Novem­ber, the price fall ac­cel­er­ated as the cash el­e­ment ended, par­tic­u­larly in the short and medium terms, in re­alty trans­ac­tions. The cu­mu­la­tive price cor­rec­tions over five years and af­ter de­mon­eti­sa­tion are pegged at 40% to 50%, ac­cord­ing to lo­cal re­alty ex­perts.

Ear­lier this month, public and pri­vate sec­tor banks, flooded with de­posits af­ter de­mon­eti­sa­tion, started to cut in­ter­est rates on home loans; the rate cut, on an av­er­age var­ied be­tween 0.5% and 0.9%. The cur­rent home loan in­ter­est rate lev­els are one of the low­est since 2010. “But the home buyer in the state is yet to re-start buy­ing home in re­sponse to these changed mar­ket con­di­tions. This is the case with both the end-user and the in­vestor. The trad­ing vol­umes re­main low, par­tic­u­larly af­ter de­mon­eti­sa­tion. The cut in home loan in­ter­est rates was ex­pected to bring back buy­ers but these ex­pec­ta­tions haven’t been re­alised so far,” says Prakash Jin­dal, 48, a Ludhiana-based real es­tate con­sul­tant.

While there are sev­eral rea­sons en­cour­ag­ing the home buyer to re-en­ter the re­alty mar­ket, there are cer­tain fac­tors that raise con­cern.

Value puz­zle

Af­ter de­mon­eti­sa­tion both the buyer and the seller are clue­less about the right price of a prop­erty. “While there is al­ways a mis­match be­tween price per­cep­tion of the buyer and the seller, this time around, nearly all re­alty stake­hold­ers, in­clud­ing the end-user, the builders, the seller in the sec­ondary mar­ket, and prop­erty deal­ers, don’t know what the value of re­alty as­sets listed for sell­ing are. The cash el­e­ment or the ‘black’ money com­po­nent com­prised a ma­jor part of the mar­ket price of a house in the state be­fore the de­mon­eti­sa­tion was an­nounced. Now, this cash el­e­ment is gone, and so both seller and buy­ers are un­sure as to what is the trad­able value of a house. Most are in a fix whether the lo­cal col­lec­tor rate should be the value of the prop­erty or should the seller de­mand the mar­ket value be­fore the de­mon­eti­sa­tion an­nounce­ment. So, trad­ing vol­umes have sharply de­clined, and most buy­ers are wait­ing for more clar­ity on the is­sue,” says Jogin­der Singh, 52, an Am­rit­sar-based real es­tate con­sul­tant.

Poll un­cer­tainty

The state assem­bly elec­tions are sched­uled on Fe­bru­ary 4, and re­sults are slated for March 11. “Be­fore the elec­tions, the real es­tate sec­tor comes to a stand­still. This time around also the elec­tion im­pact on re­alty trad­ing is sim­i­lar. Most re­alty stake­hold­ers, in­clud­ing buy­ers and builders have post­poned their mar­ket de­ci­sions wait­ing to see which way the po­lit­i­cal wind blows. This year, the three-cor­nered fight and con­se­quent fears of a hung assem­bly has added un­cer­tainty. The im­pact is be­ing felt on the hous­ing sec­tor and state econ­omy,” says Vinod Goel, 37, a Bathinda-based agri­cul­ture goods trader.

Bud­get in­cen­tives

The Union bud­get will pre­cede the assem­bly elec­tions by a few days. “Both the buy­ers and builders are ex­pect­ing re­lief for the sec­tor and on the in­come tax front. The goods and ser­vices tax (GST) regime from July has driven the buyer and builder to adopt a wait and watch pol­icy. The mar­ket sce­nario in the state will change once the bud­get and elec­tions re­sults are an­nounced,” says Singh.

Ad­di­tional rate cuts

Af­ter five years, the in­ter­est rates started to fall in the last six months of 2016. Af­ter de­mon­eti­sa­tion, there is a sharper fall in rates. But for most home buy­ers the in­ter­est rates aren’t low enough. “Banks will have to re­duce lend­ing rates as they con­tinue to cut on de­posit rates. The huge in­flow of funds af­ter de­mon­eti­sa­tion ne­ces­si­tates a cut in lend­ing rates. The re­cent cut in rates is only a start. By the year-end, we ex­pect fur­ther rate cuts so it does not make sense to bor­row now and pur­chase a house. We’d rather wait for six months be­fore buy­ing a house than jump the gun now,” says Ra­jen­der Gill, 36, an SAS Na­gar­based buyer work­ing with a pri­vate sec­tor bank.

Be­nami ques­tion

The im­ple­men­ta­tion of the Pro­hi­bi­tion of the Be­nami Prop­er­ties Trans­ac­tion Act is also seen as a po­ten­tial de­ter­rent for new in­vestors en­ter­ing the re­alty sec­tor. “The value of the re­alty as an as­set class has de­clined in the re­cent past with de­clin­ing hous­ing prices. The Be­nami Act has added to un­cer­tainty in the mar­ket with most buy­ers still un­sure about the trad­ing prospects in the face of the Act. There is gen­eral per­cep­tion that the in­vestor de­mand will fall, and al­ready, we are see­ing in­vestors hes­i­tant to en­ter the mar­ket be­cause of the Act,” says Bhupin­der Sharma, 32, an Am­bala-based real es­tate con­sul­tant.

Sup­ply-de­mand mis­match

Even in cases where the buyer wants to buy a house and make most of the cheaper prices and credit, he is un­able to ex­e­cute this de­ci­sion be­cause of lack of req­ui­site hous­ing prod­ucts in the mar­ket. “Builders have been slow to adapt to chang­ing mar­ket con­di­tions. Most of them are sit­ting on large un­sold in­ven­tory that caters to ei­ther the mid­dle-in­come group buy­ers or buy­ers of lux­ury hous­ing. The de­mand, how­ever, is con- cen­trated in the bud­get and af­ford­able seg­ments. Un­less builders start to of­fer­ing prod­ucts that the buyer wants, it is un­likely that the cur­rent low de­mand lev­els will change,” says Gill.

Wait­ing for RERA

The Real Es­tate Reg­u­la­tory Au­thor­ity (RERA) is stip­u­lated to be set up by May 1 but the state gov­ern­ment has been slow in draft­ing and no­ti­fy­ing the rules un­der the Act. Now, this is ex­pected to hap­pen only af­ter the new gov­ern­ment takes over in March. “RERA is a game changer for the home buy­ers, and it is un­der­stand­able that most buy­ers will com­mit to a home pur­chase, par­tic­u­larly, in the pri­mary mar­ket only when RERA is con­sti­tuted,” says Sharma.

Af­ter re­main­ing dor­mant for years, par­tic­u­larly on the pol­icy front, the hous­ing sec­tor in Pun­jab has seen a num­ber of dra­matic pol­icy changes in the past few months. It is too fast a change for most buy­ers to un­der­stand, ab­sorb, and con­se­quently most have adopted a wait and watch ap­proach.

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