Right time to buy a house as prices dip in real terms

The average residential property prices in India’s top eight cities have moved up only 4 per cent in the past two years, signalling the right time for home buyers to take the plunge.

Given the average inflation of 4.97 per cent in 2016 and 5.9 per cent in 2015, home prices have actually declined in real terms, making them more affordable.

“From the consumer point of view, it is a good time to enter the market. My outlook for prices is still down and I see no appreciation in the next three years in the primary market,” Pankaj Kapoor, Managing Director of Liases Foras, a real estate consultancy firm, told BusinessLine .

The average price per sq ft, in fact, has declined for the National Capital Region (NCR), Pune and Kolkata, while it is up only about 1 per cent for the Mumbai Metropolitan Region (MMR).

Surabhi Arora, Senior Associate Director at Colliers India, said developers will probably resist cutting prices but continue to offer subsidised payment plans and price guarantees. “We think prospective buyers should not delay their decision unduly, since they can negotiate realistic prices in both the primary and secondary markets,” she said.

Sitting over an unsold inventory of 47 months, developers are now forced to offer discounts. The highest unsold inventory is in MMR at 54 months, while it is 51 months in NCR. “An efficient market maintains 8-12 months’ inventory; the current situation would indicate a downside pressure on prices in all major cities across India,” Kapoor added.

Govt incentives The government’s incentives in the form of lower interest rates and a push to affordable housing have also led to an increase in demand for residential units.

Banks have now cut home loan rates to 8.25-8.5 per cent, the lowest level in the past eight years.

The government has also announced an interest subsidy of up to 4 per cent for first-time affordable housing home buyers.

“To an extent, the government is now funding your house, for the first time in India,” said Kapoor.

Already, sales have started going up, with improved home loan rates and stable residential prices. According to Liases Foras, sales in the top eight cities increased 21 per cent in the fourth fiscal quarter over the October-December 2016 period.

AS Sivaramakrishnan, Head, Residential Services, India, CBRE South Asia, said volumes are going up because the general confidence level has improved.

“There is a generic realisation in the market that prices have bottomed out and mortgage rates have gone down. So we have seen good traction in the first three months,” he said.

But a few months down the line, prices may begin going up. “Developers will be a little wary of doing it immediately, but eventually the prices will go up as demand is gradually coming back to the market,” he said.

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