Is this the right time to buy an apartment?

What was happening?

Home owners were postponing purchase decisions since most of them were priced out, especially since 2005. In simple words they were not finding a property within their budget because the supply that was coming into the market, especially after 2005, was catering to the high end segment. Interest rates on home loans started rising after hitting a low of around 7.5 % in mid 2004. High interest rates meant you had to pay a higher price for your loan. According to a study when interest rates hit a low, around 39% of an individual’s monthly income used to go towards servicing the EMI, after 2005 this figure shot up to around 54 %.
In 2008 the sector which was already batting high property costs and high interest rates, received a big blow from negative sentiments and insecurity among prospective homebuyers about their future earnings. While the above mentioned reason has forced likely home buyers to postpone purchases, developers too were in a spot. Their major problem was liquidity, regular sources of funds –banks, IPOs and private equity had dried up for them. Sales too had taken a severe hit since Jan 2008.

Come 2009..
Prices have come down from 15-30% all across the country. Moreover the concentration on building small more efficient houses just adds the affordability. Top that with SBI’s lead gesture to bring down home loan rates to 8%(even though it is for one year only ) and government directive to include housing sector in priority sector lending category.

So should I buy now?

Yes, this is a good time to buy. Interest rates have almost bottomed out (only to be further harden by the end of the year which will raise home loan prices too) So take advantage of that builders are offering to clear inventory & a home loan from SBI or other public sector banks and I think you’ve got a good deal.

Should I sell my apartment now?
You should sell if you had invested in that property purely for investment reasons. Realty has stabilized so no more abnormal gains in the next 3 years. Many investors are trying to pull out of their investments. Most are not finding buyers at a price that they think is fair value of their property.

If you had entered the real estate market to make quick money there is no point hanging around any longer. Even if you had invested for the medium term but are facing liquidity pressures, it is better to find a buyer and pull out. However if there is no compelling reason for you to pull out, it is a better idea to stay invested for the medium to long term, preferably more than 5 years. Also remember the returns from real estate are second only to equity.

Once you are sure you want to sell, get a fix on the price. Buyers are very sensitive about the price. Get an idea of the recent sale price in the locality of your property for similar property. Get an idea of how much prices have fallen since Jan 08 and factor in the correction. Be flexible during negotiations process. Keep in mind that your money is locked in the house (which you don’t need and keep in mind that money has opportunity cost!) so liquidate it and use it for investments or paying off liabilities. If your loan is still running and you wish to sell the house, you will have to involve the loan provider in the process.
If you are not flexible about your price expectations prospective buyers who could have bought your property will move away to mid income and low income segments. The best way to market the property is to list it in the many realty portals available like magic bricks.com, makaan.com, 99acres.com.You could contact your local broker but his reach will be limited and commission could be as high as 1 % of the sales price.

What about unfinished construction?
Visit the site regularly to check if construction is still on. If construction is on full swing, do not stop the regular checks. However if construction has stopped on the site then take up the matter with the developer. Take along like minded people who have also invested in the same project. If the developer does not listen to you, approach the local body of developers. Most forward looking bodies will help you... However if the matter does not get resolved at this level either, approach the consumer court. In numerous instances, consumer courts have taken the developers to task for delay in projects.

Whatever happens don’t worry even if the prices are down right now you will still stand to gain if you have invested for the medium to long term, because the present slowdown is, after all, a cyclical phase.


Comments, views and suggestions are most welcome....