Personal Finance

Home Truths: Lessons for home buyers

Meera Siva | Updated on March 10, 2018

Here are the insights gleaned from the trends in 2017

The year that went by was probably a watershed one for real estate. The housing market saw landmark policies such as the implementation of RERA (Real Estate Regulatory Act); buyers got relief from court for delays in handover and housing loan rates moved favourably.

But not everything was hunky-dory on the ground. Here’s a look at the impact of the developments in 2017 and the takeaways for home buyers.

No new era

The impact of RERA, which was expected to start a new era for home buyers, has so far been muted at best. Data on RERA from real estate advisory firm CBRE shows that 10 States — including West Bengal and Telangana — had not implemented the Act as of November; only 11 of the 18 States that have implemented it have an active online portal, a crucial step towards easing access to data.

Even among those that have an online portal, detailed project-level information is not available in many websites, including at sites of major States such as Karnataka and Andhra Pradesh.

Also, States such as Tamil Nadu, Uttarakhand and Kerala do not have a way to register complaints online, another key need for home buyers. Project registrations have been quite low in many States — only 250 in Tamil Nadu; they are on hold in Kerala.

These may be viewed as initial hiccups which will settle over time.

However, the Act was passed in March 2016 and had to be implemented by May 2017, giving enough time for States.

But even after six months, there seems to be little traction and developer and broker registrations have not been very encouraging. It looks like a case of laws changing but flaws not changing.

The level of transparency and power to home buyers given by RERA may take a while before becoming a reality and buyers must deal with business-as-usual.

Limited power

The year also saw home buyers, who suffered from extensive delays in completion, winning legal battles. For instance, buyers who booked a flat in 2010 with Unitech, a large developer, won their case in the Supreme Court this year. The builder was asked to pay 14 per cent interest on the money collected from buyers.

The Supreme Court this year upheld that buyers can jointly approach the National Consumer Disputes Redressal Commission directly, skipping lower courts.

So far, buyers have been paying the price for issues at all levels — be it delays by authority or developer. For example, violations by the builder may lead to occupancy certificate not being issued and the building may also be demolished for lack of approvals.

Apathy on the part of authorities and laxity in standards is also an issue that buyers had to pay for. Buyers also pay a higher price due to delays in clearances from the government, which adds to project cost.

But, despite the buyer winning many long-drawn legal cases, it turned out that there were no signs of change in the power equilibrium.

It was hoped that in 2017, the large inventory and lull, which created a buyer’s market, may provide more power to the buyer. But, the most buyers could hope for was some ability to negotiate prices. Buyers may have to find ways, such as forming groups, to demand better terms and enforce their rights.

Increasing risks

The year also saw home purchase witness increasing risks. For instance, after demonetisation and the amendment to the Benami Transactions Act, liquidity has been sucked out in the property resale market.

While real estate is known to be illiquid, 2017 saw the risks amplified and many sellers were stuck. This issue, contrasted against good returns and lower regulatory and tax risks in other asset classes, has lowered risk-adjusted return potential for property. The old rules and the math on property as an asset class, which led to high weightage in one’s portfolio, changed in 2017. There was a shift from property to financial assets, which was visible in the market. Going forward, buyers will have to factor in regulatory events, their liquidity needs and allocate investment after a detailed assessment of returns and risk.

Changing needs

In 2017, long-term macro trends also shaped buyer attitude. Demographic factors, job availability and shifts in priorities have been altering housing needs, but appeared more pronounced this year. For example, the slow job growth in the IT sector impacted home buying, as it is a long-term commitment.

Also, the perceived lack of job stability — a somewhat new phenomenon in India — further dented buyer interest, even with historically low home-loan rates. A growing buyer preference for brand names in home buying was also seen. These factors are likely to influence housing-related decisions, especially as the country has a large young population and a growing senior population.

The writer is co-founder, RaNa Investment Advisors

Published on December 24, 2017

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