Be­ware of small builders

Res­i­den­tial mar­ket likely to re­main sub­dued after RBI keeps rates un­changed Com­pro­mis­ing on developer cre­den­tials can prove to be a very ex­pen­sive mis­take for the buyer

HT Estates - - HTESTATES - An­shu­man Mag­a­zine HT Es­tates Cor­re­spon­dent

Dur­ing its fifth bi-monthl y mone­tary pol­icy re­view this month, the Cen­tral Bank kept key pol­icy rates un­changed, as was widely ex­pected by in­dus­try an­a­lysts. Ex­plain­ing its ra­tio­nale be­hind the pol­icy stance, the Re­serve Bank of In­dia (RBI) clar­i­fied that while re­tail in­fla­tion had de­cel­er­ated sharply, there was still un­cer­tainty about a favourable base ef­fect and the full im­pact of a de­fi­cient mon­soon on food prices.

After a bet­ter than ex­pected growth of 5.7% dur­ing the April–June quar­ter, In­dia’s GDP growth slowed down to 5.3% dur­ing July–Septem­ber, mainly due to slug­gish­ness in man­u­fac­tur­ing growth and a slow­down in agri­cul­tural out­put. The quar­ter-on-quar­ter de­cel­er­a­tion in eco­nomic growth came amid a time when In­dia’s con­sumer price in­fla­tion for Oc­to­ber fell to a his­toric low of 5.52% (even below the Cen­tral Bank’s tar­get of 6% for 2016).

De­spite the dis­ap­point­ing GDP fig­ures, re­cent months have seen in­di­ca­tions of an eco­nomic re­cov­ery. Man­u­fac­tur­ing PMI in Novem­ber reached a two-year high, with im­prove­ments re­ported across all ma­jor sec­tors. The of­fice leas­ing mar­ket has also picked up in all ma­jor cities.

In con­trast, the res­i­den­tial mar­ket con­tin­ues to suf­fer from fad­ing de­mand due to cau­tious buyer sen­ti­ment, el­e­vated prices and high in­ter­est rates. The lack of any sub­stan­tial im­prove­ment in hous­ing sales, even dur­ing the Di­wali fes­tive sea­son — tra­di­tion­ally a busy pe­riod for the hous­ing sec­tor — re­flects the cur­rent sub­dued mar­ket.

What does it mean for real es­tate? At a j unc­ture when hous­ing sales across most ma­jor cities saw a drop and re­tail in­fla­tion dropped to a his­toric low, the de­ci­sion to hold on to key in­ter­est rates may be viewed as a lost op­por­tu­nity to trig­ger a re­vival across the coun­try’s flag­ging res­i­den­tial mar­kets.

The res­i­den­tial sec­tor would have sig­nif­i­cantly ben­e­fit­ted from a rate cut, con­tribut­ing to­wards re­duc­ing bor­row­ing costs while in­creas­ing de­velop- er liq­uid­ity and boost­ing buyer af­ford­abil­ity. It would also have en­cour­aged po­ten­tial home­buy­ers to en­ter the mar­ket, re­viv­ing de­clin­ing res­i­den­tial sales and ef­fect­ing an in­crease in trans­ac­tion vol­umes across lead­ing cities.

Hous­ing de­mand con­tin­ued to re­main sub­dued in re­cent months, re­sult­ing in a num­ber of de­vel­op­ers de­fer­ring new l aunches. They fo­cused on com­plet­ing ex­ist­ing projects and de­layed new l aunches owing to ris­ing un­sold in­ven­tory. Hous­ing sales re­mained muted even dur­ing the fest ive sea­son, as a cau­tious buyer sen­ti­ment rode over dis­counts and at­trac­tive marketing of­fers. This is per­haps a sig­nal that pre­vail­ing high prop­erty prices and high in­ter­est rates may have pro­longed the stag­na­tion in the res­i­den­tial mar­ket.

The fes­tive pe­riod of Septem­ber–Oc­to­ber saw new mid-end prop­erty launches at Kan­di­vali, Malad, and Thane in Mum­bai; the mi­cro-mar­kets of Off-Hen­nur Road, Ye­la­hanka Main Road, and Sar­japur Road in Ban­ga­lore; and the pe­riph­eral mar­kets of Kharadi, Wagholi and Kothrud An­nex in Pune.

Most new pro­ject launches dur­ing Oc­to­ber– Novem­ber in the mid- end and high- end

seg­ments were con­cen­trated in mi­cro-mar­kets such as the Greater Noida Ex­press­way in Noida, Mu­lund/ And­heri in Mum­bai, White­field and Mysore Road in Ban­ga­lore and New Town and Ra­jpur in Kolkata.

In ter ms of pro­ject sizes, most of the new launches in Pune and Chen­nai were small­sized ( lesser than 250 units), while a cou­ple of large- sized de­vel­op­ments (500–1,400 units) were launched in Ban­ga­lore, Mum­bai and Kolkata. Re­strained hous­ing de­mand, cou­pled with sup­ply pres­sures, led to sta­ble prop­erty prices across most hous­ing mar­kets across the coun­try. Cap­i­tal val­ues re­mained largely sta­ble in re­cent months due to ex­ist­ing

lev­els of un­sold in­ven­tory.

The par­ing of in­ter­est rates alone, how­ever, will not be suf­fi­cient to stim­u­late de­mand. Other ma­jor chal­lenges in­clude the nu­mer­ous bu­reau­cratic hur­dles that have led to a huge back­log of stalled in­vest­ment projects, which have yet to be fully ad­dressed by the new gov­ern­ment. While the lack of ac­tion by the RBI does ap­pear to be a lost op­por­tu­nity, it is an­tic­i­pated that the sus­tained de­cel­er­a­tion in in­fla­tion will prompt a round of mone­tary eas­ing in early 2015, a move that would be an im­por­tant and much needed first step to­wards boost­ing the res­i­den­tial mar­ket.

Th e d a i l y p ap e r s a r e re­plete with com­plaints by buy­ers who had been led astray or oth­er­wise vic­timised by fly-by-night de­vel­op­ers who spe­cialise in launch­ing small one- of f projects and then wash their hands off the pro­ject. In a mar­ket en­vi­ron­ment where the ex­ists a high de­gree of cus­tomer aware­ness with re­gards to most prod­ucts, how can this con­tinue to hap­pen?

Prop­erty buy­ers are pri­mar­ily at­tracted to projects by fly-bynight de­vel­op­ers be­cause of the low rates be­ing quoted. What they do not re­alise is that th­ese sav­ings of­ten come with huge po­ten­tial losses in the fu­ture.

Many small- time builders have no core ex­per­tise in real es­tate de­vel­op­ment what­so­ever - of­ten, they are money­len­ders, lo­cal politi­cos, un­e­d­u­cated farm­ers or even prop­erty bro­kers seek­ing to make a quick buck off un­sus­pect­ing buy­ers. Such de­vel­op­ers are not in­ter­ested in be­com­ing es­tab­lished mar­ket play­ers, and there­fore have no stake in earn­ing a rep­u­ta­tion for trans­parency and whole­some business prac­tices.

Such de­vel­op­ers make their prof­its by us­ing sub-stan­dard con­struc­tion ma­te­ri­als, ac­quir­ing and build­ing on plots with flawed or in­com­plete ti­tles, cir­cum­vent­ing or ig­nor­ing ap­pli­ca­ble de­vel­op­ment laws and ne­glect­ing to ob­tain all the nec­es­sary build­ing per­mis­sions. They also ac­cept ‘black money’ as part of their trans­ac­tions, con­tribut­ing to the opaque­ness of the mar­ket and short-changing the gov­ern­ment on stamp duty and reg­is­tra­tion rev­enues, say real es­tate ex­perts.

Like­wise, scores of home buy­ers con­tinue to be mis­guided by small-time prop­erty bro­kers who op­er­ate in tiny seg­ments of the larger mar­ket and have no scru­ples about sell- ing them in­fe­rior prod­ucts on the pri­mary or re­sale mar­ket. Un­told num­bers of buy­ers who avail of the ser­vices of such bro­kers find them­selves hold­ing prop­er­ties whose de­fects come to light only after the trans­ac­tion is over.

It is sur­pris­ing that in an age where In­dian con­sumers are highly at­tuned to the value that es­tab­lished brands bring to the ta­ble in the re­tail sec­tor, a large num­ber of In­di­ans still pa­tron­ize un­scrupu­lous bit­play­ers when it comes to buy­ing a home. We can only hope for a whole­some mar­ket en­vi­ron­ment where trans­parency di­rectly ben­e­fits con­sumers if con­sumers them­selves refuse to pa­tro­n­ise op­er­a­tives whose busi­nesses thrive on con­ceal­ment and false in­for­ma­tion rather than ethics and trans­parency.


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