India Economy

What’s trending in the property markets?

Meera Siva | Updated on February 11, 2018   -

Home buyers can take cues from a recent Knight Frank Report

Real estate market-related numbers — sales, launches and prices — have all been in the red in recent times. Published numbers from property market research consulting firms such as Knight Frank point to gloom and doom. However, every cloud has a silver lining. There are quite a few cues for home buyers, if one reads between the lines.

Explore redeveloped homes

The report from Knight Frank for 2017 shows that property launches in eight major cities slumped 41 per cent year-on-year. . For one, this supply drop may be seen as helping to stabilise the market, as the numbers show that unsold inventory also fell 19 per cent. Besides, one often overlooked aspect of property data is that it does not include redevelopment. In many markets such as in Chennai, there are a lot of joint development projects where single-family homes are converted to multi-unit apartments. These add to the housing supply, but are not included in the launch and sale numbers. As a result, new housing data may be under-stated.

Buyers could consider buying these projects as they may get completed faster once the joint development agreement is done, due to their smaller size and fewer issues in titles. They may also be in prime locations compared to new developments.

Follow office market

Home buyers could also take cues from the trends in the office market. Data from Knight Frank shows that average office rents rose by 3 per cent. Vacancies in markets such as Chennai have come down — from 22.5 per cent in 2015 to about 10 per cent.

Buyers could look at trends from office market data to pick their location as office space absorption is often a lead indicator of housing demand. Among cities, Hyderabad beats Chennai in office space absorption — which may translate to better prospects for the residential segment in Hyderabad.

Within a city, buyers can look at corridors with strong office market and expected launches, as this can help development and housing demand and hence price appreciation for your property.

Think before you borrow

Before getting home loans, buyers may want to look closely at the effect of price pressure on home loans.

Data from Knight Frank shows that home prices have dipped for the first time in many markets. In Mumbai, for instance, home prices declined by 5 per cent y-o-y in 2017 — the biggest in a decade.

Markets such as NCR have huge unsold inventory — of completed and under-construction homes. Data shows that it would take at least five years to exhaust the stock in NCR at current demand levels. Hence prices are likely to head down rather than recover.

So far, asset quality has been stable in the housing segment, as per a report from ICRA. But anecdotal evidence shows that housing loan providers are treading cautiously when lending to home buyers who are IT sector employees.

This is said to be due to qualms about job security in this segment. Now, with added anxieties about housing price correction, lenders may not want to lend 80 per cent of the value and may desire a higher loan to value.

Hence, before rushing to obtain home loans, buyers may want to look at the likelihood of price correction and their ability to service the loan when borrowing to buy a home.

Rising rentals

Another effect of falling prices is the impact on housing rents. In India, where prices have mostly been on an uptrend, home owners expected returns from capital appreciation. However, when prices fall, owners may want to look at rents to earn returns.

The ‘buy versus rent’ math clearly points to renting as a better option, as prices are high. Also, many potential buyers are deferring their buying decision as they expect prices to fall. They add to the tenant pool and that increases the demand for rental housing. As rents are a matter of supply and demand, lower number of new launches and higher demand may push up rents in the short term.

Buyers should factor in the likelihood of higher rent in their monthly budget. When deciding to buy, they can give weightage to rental yields, as price increase may not be an attraction in the near future.

The writer is co-founder, RaNa Investment Advisors

Published on February 11, 2018

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