In resale or new?
Buying a house entails an important decision to opt either for the primary or secondary market
The location may be the defining refrain of the realty sector but for the home buyer when it comes to deciding to buy a house there are several parameters to consider such as price and product segments. An important parameter – primary or secondary market – is often overlooked because few buyers notice the significance of the distinctions between the two. In one, there are old properties available on resale (secondary), while in another new properties are on offer (primary). The primary market is dominated by the builder projects, while in the secondary market, it is the individual sellers who are active. Both options can be weighed against several parameters.
Testing builder performance
In the secondary market, the buyer is in a better position to check a developer’s performance and his track record. A buyer can check the quality of the infrastructure, amenities and services provided; and the maintenance in the project. A buyer in the secondary market knows or has the full opportu- nity to know what he is getting into. He does not have to trust a seller’s word for it. He can visit the location and interact with people already living there about the living conditions, etc. “In the primary market, generally, there is no such option available; unless, the project or the property is an extension or new phase of an older developed project. The buyer can check the track record of the developer and make an informed assessment whether the developer delivers on his promises,” Ravi Singla, 43, a Panchkula-based real estate consultant.
Possession delay is a concern for the buyer. The problem has only increased since the slowdown hit the housing sector six years ago. From a buyer’s perspective, the non-delivery of possession or delays in pos-pos- session is mainly a problem in the primary market. “In the secondary market, the problem of possession is minimal, and most properties are ready-to-move. Most end-users don’t want to put their life’s savings in a property with uncertain possession date. Even investors don’t want to get stuck in a project with limited exit options; incomplete projects have few takers. In the secondary market, houses are tangible, and unlike the primary market, aren’t confined to the pages of a project’s brochure,” says Mukesh Goel, 39, a Zirakpurbased real estate consultant. Realty experts say this is one of the important reasons for buyers avoiding the primary market and projects under construction.
For the buyer, availing home loan, the distinction between primary and secondary is of paramount importance in terms of the financial burden it entails. While choosing between the secondary and the primary market, a buyer should know that in the secondary market (ready-to-move-in property) he does not need to pay the EMI (equated monthly instalment) and the monthly rental at the same time. He can shift to the newly bought house and save on paying the monthly rent.
“In the primary market, this is seldom the case, except when he opts for a project where sub-sub- vention schemes are available. There are few properties in the primary market that are readyto-move-in. Primary market mainly has properties under construction or freshly launched projects where the construction is yet to start. The buyer opting for the primary over the secondary market has to bear the twin burdens of monthly rental and the EMI. This becomes difficult with developers not sticking to delivery deadlines,” says Himanshu Vohra, 36, an IT professional and a prospective buyer.
In the last couple of years, developers have tried to minimise this disadvantage of the primary market by offering subvention schemes, where in, the buyer is not required to pay EMI till the possession of the property is given. Several developers are offering this scheme in one form or another.
Home prices in the secondary market are less immune to market dynamics than the primary market. In the primary market, the developer acts as shield against the market forces that impact prices, particularly during a slowdown when the price decreases in the secondary market. The price difference between two markets for similar properties can be as high as 20% to 25%. It is less in the secondary market than the primary mar-market. “The developer has limited leverage in the secondary market but in the primary market he decides at what price he sells. Several factors like positioning his property as high investment return prospect for investors, make developer price a property or project higher than secondary market price levels. Naturally, most buyers in such cases opt for the secondary market,” says Singla. Developers make an effort to even out the effective price difference between the two markets to attract both the enduser and the investor. While the declared price for a property in the primary market is higher than the secondary market, by offering discounts, freebies and incentives, the effective price between two markets is minimised.
Like for any other product, in the housing market also, the attraction of a new product over a used one always remains. If a buyer has the priority of buying a new house rather than an older one, then his market search for it can be tailored around this factor only. “Unlike other products like FMCG (fast moving consumer goods), in the housing market, this preference for the new over the old is limited. A house is not only a product to be used for some time only but it is also an investment asset,” says Goel.