Personal Finance

Should you go for festival season deals?

Meera Siva | Updated on September 15, 2019 Published on September 15, 2019

Home buyers must think deep and not get carried away by discounts

“I want to buy a flat this festival season,” read Rosy’s message. She was ever optimistic about the property market and shared various articles and data in her Whatsapp group with friends. While others remained negative or sceptical, Housie was a millennial who logically gathered data and analaysed information, while Lousie could never find anything positive about home ownership or investment.

Why buy

After a few light-hearted jokes teasing her and a few asking why she was eager, Rosy typed a long response. “The slowdown in the market is mainly due to the regulatory changes and it is only temporary. With RERA (Real Estate (Regulation and Development Act), low interest rates and better quality of developers now, the sector will see more investments. Also, prices have not increased; in fact, they have fallen in many places. The cycle will turn.

“And there are really good offers for houses from builders. For example, you get all your appliances for free when you buy a house or you can get complete waiver of GST and registration fees, reducing payment by 5-12 per cent. And these are on the already nominal prices. Plus, some developers are offering flexible payments — you pay an advance of 10 per cent, there is no EMI and payment can be made after 15-18 months when the project is nearly done. Also, with so much economic uncertainty, it is better to not invest in the stock market and instead buy property which is a real asset,” she said. Someone in the group added that there were some cities such as Hyderabad that are already seeing price rise. Another said that buying when there is blood on the street is always a good contrarian strategy.

This led to a flood of responses, with many media articles quoted. One of the links shared talked of developer default risk growing due to the lack of liquidity in the market. About 220 projects with 1.74 lakh units are stuck in the top seven cities, as per a report by ANAROCK Consultants. These were launched before 2013 but remain stalled with no construction activity.

Another set of publications talked about the general lack of demand and no expectation of a price revival in the foreseeable future. For instance, as per the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index, nearly 70 per cent of the stakeholders feel house sales will be tepid or go down further in the coming six months. Sentiments regarding price also look lacklustre with 75 per cent feeling that prices will continue to remain muted. A Reuters poll of 18 property analysts found that they all felt that the impact of the liquidity crunch would last for at least six months and would be severe to very severe.

“Though prices have not increased, RBI data showed that houses are less affordable now, compared with a year ago. Without increase in affordability — with higher wage and job growth — how will prices go up?” asked an economist in the group.

Housie added that inventory level data may be of comfort with decrease in the number of unsold units. But when measured in months that it takes to clear — which is based on demand — a fall in demand could quickly make the situation worrisome again.

“With liquid investments such as stocks, you can at least sell at a loss and get out when you want. But real estate is a very illiquid investment and many owners are stuck with a house as they are not able to find a buyer. If you worry about capital protection, maybe government bonds or fixed deposits are better,”, said Lousie. “Or gold,” added his wife.

Misleading offers

Housie shared calculations that showed how offers often do not give any real benefits. Instead, many are used to attract buyers to under-construction properties. “Say, you have paid ₹50 lakh for a flat and it is delayed by four months. No big deal, right? Well, the interest loss on this, even at 6 per cent, is ₹1 lakh. You would continue paying your rent as you cannot move in. The cost of appliance may not be worth even this.”

Likewise, a 10 per cent down payment offer may not be worth it as you have given your money for 1-2 years without any interest and taking on risk of completion and delays. “There is an easier way to get GST waiver — buy completed houses. Offers on these that lower prices may be the ones worth considering,” said a tax consultant.

“With economic uncertainty, people defer big-ticket purchases. Plus, the rent vs ownership math also favours renting in nearly all the big cities. I think there will be more slippery slopes unfolding for developers, which adds to the risk of buying under-construction houses for a deal,” said Lousie.

Housie said that if there are offers from quality developers in markets that are seeing a pick-up, and the project has attractive features, it is worth buying. Else, taking a contrarian view is premature now.

The writer is an independent financial consultant

Published on September 15, 2019
This article is closed for comments.
Please Email the Editor