Booming markets to keep home prices sky high

What does a soaring Sensex mean for the property buyer? For her, the bad news is that a spiralling stock market will postpone any serious correction in the booming real estate mart. Developers can raise cheaper money as their companies become more valuable, more foreign money through hybrid instruments will flow in to chase real estate — commercial as well as residential — and any meaningful cut in the interest rate (that will make home loans cheaper) will be delayed.

However, there is a silver lining: what is not picking up is the ultimate sales. Developers grudgingly admit that there aren’t too many transactions taking place. The festival season between Dusshera and Diwali has traditionally been the time when most families choose to move into their new homes. Property agents confirmed that even though there have been enquiries from buyers, such interests are not translating into deals.

Understandably, many investors are in a state of dilemma. Should they wait for the property bubble to burst? (Will it ever burst?). While prices have stabilised in a few markets, this hasn’t been the case in Mumbai — the country’s hottest real estate market. Some of the veterans in the real estate sector as well as officials of mortgage firms ET spoke to said it may make sense for the property buyer to wait and watch for a while before taking the plunge.

They think if rates don’t soften and property sales don’t pick up till Christmas, prices will come down. Under the circumstances, buyers should wait a little to figure out where the market is headed. This would not only insulate them from unreasonably high prices, but also give them the chance of a decent capital appreciation in the days to come.

But, things could turn out to be less simpler. Many real estate stocks have gone up along with the Sensex. The BSE Realty Index appears among the top gainers every time the market makes a new high. Since its inception in July 2007, the realty index has appreciated a good 39%. Besides, property transactions have jumped in the last five years.

The upshot is: builders, particularly the bigger ones, have made enough money to hold on to the properties. More so, since they have bought out some of the smaller players. As a result they may be in a position to wait longer than the genuine home buyer who has to take that big loan before its too late.

Mortgage analysts said, though property prices have corrected in some cities, there are pockets which still command unreasonably high prices. Some developers are offering new deals to attract buyers. Not only is this restricted to negotiable car parking facility but also in convenient payment terms. For instance, the interest burden during the construction phase is picked up by the developer.

Since construction takes a long time, developers are coming forward to take the interest burden on properties till such time it is handed over to the customer. But here again, the negotiation skills of the customer play an important role. In some cases, such deals could result in a saving of Rs 300-500 per sq ft. In fact, even in cities like Mumbai and Delhi, some developers are offering good deals. These are positive indications for investors and home buyers.

(via Economic Times.)