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
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.
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.
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.
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.
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.
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.