Invest in real estate now, residential rates may rise in latter part of 2015
The increase in demand for office space indicates that the economy is on the mend. If this trend continues in 2015, it will have a positive effect on the residential market," says Sanjay Dutt, executive MD, South Asia, Cushman & Wakefield
Dec 29, 2014
Source : The Economic Times


Most real estate markets in India, with the exception of Bangalore, remained stagnant in 2014. Sales velocity stayed low. This was due to already high prices, poor buyer sentiment, uncertainty regarding the country's economic recovery and lack of confidence in one's job prospects. Only properties that were nearing completion appreciated as buyers sought to avoid the risk of delays.

Fewer new projects were launched in 2014 compared to the previous two years. While developers did not lower their rates, they reduced the size of apartments to decrease the ticket size and appeal to more buyers.

The Bangalore market, however, continued to hold up because most of the projects launched there were aimed at mid-segment buyers and prices had not turned unaffordable.

On a positive note, the absorption of office space in 2014 was 45% higher than in the previous year. "The increase in demand for office space indicates that the economy is on the mend. If this trend continues in 2015, it will have a positive effect on the residential market," says Sanjay Dutt, executive MD, South Asia, Cushman & Wakefield. According to a thumb rule, each 1 million sq. ft. of office space absorbed creates a demand for 8 million sq. ft. of residential space.

One of the major takeaways from 2014 for endusers was to avoid investing in early stage projects of builders who are financially weak. As sales slowed and financing became difficult to obtain, project delays became rampant. In 2015, buyers should opt for projects that are complete or nearing completion.

Investors who had bought many apartments in anticipation of flipping them found it difficult to hold on to their investments. Many were forced to exit at low or nil gains, or sometimes even at a loss. This brought home the risk of speculating and not having a sufficiently long investment horizon.

Outlook for 2015

If the economic recovery continues, sales may pick up gradually in 2015. Prices may, however, not rise in the first half of the year. "If we get a good Budget and the recovery continues, I would expect prices to move up in select micro markets in the fourth quarter of 2015," says Dutt. The already high price levels and pile-up of unsold inventories in the big cities will prevent prices from appreciating immediately.

Says Pankaj Kapoor, MD, Liases Foras, "Inventory levels have risen above 36 months in all the major cities, whereas efficient markets tend to have an inventory level of 8-12 months."

Potential buyers should not expect a sharp correction in prices. The increase in the price of land, construction and money spent on getting approvals has left developers with little room for cutting prices. Kapoor offers yet another reason. "Builders have depended heavily on investors to sell their projects. If they sell at lower prices now, those investors will feel cheated. Some may even default on payments," he says.

The current conditions offer end-users an opportunity to negotiate the best deals in terms of lower prices and better amenities. A variety of subvention schemes, which allow for deferred payment, are being offered. Make the most of them as they could be withdrawn once the market picks up.

Dutt suggests buying an apartment within the next six months. "The signs of a recovery are evident.

The sooner you buy, better the price you are likely to get," he says. Kapoor advises that you should buy in a market where the rental yield is higher than 3.5%. "If the yield is lower, it indicates that capital values have risen a lot already. This will limit the scope for future appreciation," he says.

If you are investing in realty now, have an investment horizon of at least five years. Those with the requisite risk appetite should identify a builder who is in financial distress. If you can get together with a few friends and negotiate a bulk deal, you could get a discount as high as 20-30% from such builders.

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