Personal Finance

Property sale in Covid times: What sellers should know

Meera Siva | Updated on June 16, 2020 Published on June 16, 2020

Given the current state of the market, sellers may have to over-prepare

If you wanted to sell your apartment, the last few years were not exactly great. And if you stayed on the sidelines waiting for a revival, there is certainly bad news due to Covid-19.

Real estate has not been a seller’s market and we can reasonably expect that things will get worse before they get any better. You must therefore weigh your options and take the right steps.

Selling decision

The first step is to evaluate if you must sell. For example, if there is a financial need, it is better to move ahead rather than wait it out. Likewise, if you have personal reasons ― moving out of the city, upgrading your flat due to space needs ― it is best to sell now rather than defer the decision.

It is possible that the apartment is currently rented out by you. As early indications show, rents are likely to fall in the near term, as per predictions from Liases Foras, a property consulting firm. And if you were using the monthly rent for your expenses, consider selling and investing the money to meet your cashflow needs, as rents may not help keep up with inflation.

If the apartment was bought as an investment ― rented out or not ― do a simple math to decide between selling now and waiting. For instance, Knight Frank estimates that the prime residential market price of Mumbai could fall by 5 per cent in 2020 and 3 per cent in 2021. If prices continue to fall or recover only slightly, you may be worse off in a year than selling immediately, as you can earn returns on the money from the sale.

You must also consider the age of the apartment when making a selling decision. If it is less than 10 years old, waiting may be an option. But if the apartment is ageing — say, 15 years or more — evaluate maintenance issues and value loss due to age when you decide to defer the sale for more than a year.

Pricing decision

The next tricky but important step is fixing the price. Home prices have been stagnant in many markets and it is prudent to get to the market quickly with a fair price and close a deal rather than wait for a higher price. This is because prices are more likely to fall than increase in the near term due to a few reasons.

One is the huge inventory of homes ― under construction and completed. For instance, as of March 2020, the top nine cities in India had unsold inventory of about 7.4 lakh units with 20 per cent (about 1.5 lakh units) being completed homes, as per data from PropTiger. Given the expected fall in demand ― from about 2.5 lakh per year in 2018 and 2019 ― there is a lot of supply.

Two, demand in certain segments such as luxury homes has been quite severely hit and may take long to recover. For instance, a survey by Savills India showed that in housing other than the affordable segment, 62 per cent felt that recovery could take over a year.

Three, there may be no relief coming from the government. Builders were told by Union Minister Piyush Goyal to reduce rates if they want to avoid being stuck with unsold homes. Developers may take the tough decision of losing profit to tide over their cashflow. Likewise, investors who bought under-construction homes hoping for a quick gain would opt to exit, even at a loss.

So, it is prudent to price the house conservatively to close a deal. You can look at the last sale price of comparable homes in the same area and consider reducing it by some amount as a start.

Making it happen

Even with a lower price, selling can still be tricky. Given the ample choices for buyers, it is essential that the house has a good appearance. Do not embark on expensive interior projects but ensure the basics ― fix leaky plumbing, stains and cracks in the walls, peeled paints. Be open to fixing other issues raised by the buyer ― if all other aspects of the deal are ok and agreed upon.

You must also advertise the house the right way. Rather than splash it sloppily in all the free sites, it helps to be selective and use both online and offline channels to be effective. Taking the service of a broker may also be helpful ― the time saved and the chance of getting a better price may well pay their commission of 2-3 per cent. You must also make efforts to ensure that the buyer is genuine, and the deal does not get stuck due to issues with their intent or finances.

No green shoots

Home prices are likely to fall and revival of demand may not happen in the near term

Seller questions

Can you wait?

Is your ask reasonable and practical?

What and who can help you?

(The author is an independent consultant)

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Published on June 16, 2020
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