Real estate prices tend to see-saw depending on the prevailing economic conditions. Over the past decade, real estate prices across the country have been on a continuous rising trend, especially in upcoming pockets and areas with high growth potential. However, this trend has reversed in the past few quarters.

Is this an indicator, then, that you should book that property you wanted but could not do so because of the high prices? What should you consider before making that real estate purchase decision?

Housing price trends Purchasing land or a house is an emotional decision, in addition to being a financial decision. However, it should not be forgotten that prices play an important role too. The Reserve Bank compiles the trends in the housing price index and releases this data on a quarterly basis.

The latest release by RBI indicates that house price inflation — indicated by the annual growth in the Residential Property Price Index — peaked in the December 2013 quarter and has been on a falling trend since then. In the third quarter for 2014-15, house price inflation dropped to a 14-quarter low of 3.6 per cent.

This was attributed to low end user demand and increasing inventory stocks. As a result, banks also have become wary of granting home loans due to the decreasing value of the collateral.

Investment rules Imagine if you can get a 1,200 sq ft house in the central suburbs of Mumbai at ₹7,500 per sq ft today, while the price was ₹9,000 per sq ft last year. But price is not the only thing you should consider. Here are some factors to keep in mind while making the purchase decision.

First, assess your financial situation. Can you really afford the property? Even if the 1,200 sq ft house is cheaper by 20 per cent, it still translates to a whopping ₹90 lakh.

Add to this other costs like registration, stamp duty, taxes and other charges and the total cost of the property can easily cross ₹1 crore. So understand your cash flow position and see if you can service the huge EMIs on your home loan.

Next, analyse whether you really need the property. If you already own a property and will be stretching your cash flows if you buy another one, it hardly makes sense to go ahead just because prices have sharply fallen.

Also understand the potential of the area where you plan to invest. Sometimes, a particular location may see a fall in prices or stagnant prices if there is no growth potential. In this case, if you invest, your investment may be a dead one or see very little growth. Last, but very significantly, the lowered prices could actually signal the credibility and potential of the builder, or lack thereof.

Some builders offer extremely low prices on their projects only to collect money from buyers and ease their operating cash flows. The friendlier prices could also be because they use substandard quality materials.

All price drops are not bad. In fact, if you plan to buy a house and see that prices are dropping, you certainly can benefit considerably.

However, buying a house solely based on low prices is fraught with risk.

The writer is CEO, BankBazaar.com

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