Presently, many offers and deals are doing the rounds in the real estate sector. Everywhere you look, brokers and sellers are offering lucrative deals to property buyers. No matter how low the prices go, this may not be the ideal time to take newly found risks.
Many property brokers have gone public with statements on how they have successfully closed property deals during the lockdown. However, is it factual information? If yes, then who is buying right now- and, should you join the wagon too? There are many factors to consider.
CBRE, a global property consultant, recently launched a digital portal in India that facilitates the listing of commercial properties during the present COVID-19 pandemic. Now, there have been varying reports from different sources. While one of the home-grown property brokerage firms claimed to have sold properties of around 252 crores INR, another claimed to have used a digital platform and made sales approximately INR 400 crores in March. Another claim by Magicbricks PropIndex suggested that the site had witnessed a significant hike in customer visits during this lockdown period. There has been a tremendous demand for small and read-to-move-in units across regions.
However, do not get confused with new upcoming projects and the existing ones. The new projects have been halted due to a lack of workforce, raw materials, and developers. The existing ones are in demand. The stark contrast of the situation is staggering.
Reeza Sebastian, President of Residential Business, Embassy Group, said, “The pandemic has decreased inquiries and property visits from prospective buyers. However, this does not mean that it has impacted our sales process. We have moved the entire customer acquiring process to an online platform that connects to every client. Right from booking to the inquiry, the customer life cycle process is digitized. With the introduction of virtual reality (VR) and augmented reality (AR), consumers can now log into the website and take a virtual tour of the project. They get every information at their fingertips. Additionally, it has also helped the team to pitch products effectively to NRI customers.”
Real estate experts think that this hike may be the result of significant negotiation scope in the industry. However, prospective buyers need to be judicious. Instead of rushing into closing deals, they must take their time, study the developers' past projects, and then make an informed decision. While Coronavirus has opened cost-effective options for you, it is better to be cautious and tread slowly. This is not the time to take financial and investment risks because the market, in general, has suffered a big blow due to the global lockdown and collapsing economic structures.
Things to keep in mind if you want to buy properties during COVID-19
Property buyers should first ask themselves an important question now- “Why do I want to buy a property right now?” Some possible answers include an upgrade in the present accommodation or an option of financial security. For the uninitiated, property plots have been the biggest source of financial security and help in times of need. Since the current situation of the stock markets is dwindling each day, properties can be remarkably helpful in the long run. Real estate is a long-term asset.
The second issue that you need to address is whether you are in a financial position to cater to the other obligation that comes with a new property in your books- the initial down payment for the plot, the EMIs you need to pay each month, and the operating costs such as maintenance and insurance. Not to forget, property taxes can also take a financial toll on your personal bank balance.
The present pandemic has countless people unemployed. So, are you sure of your job stability? Is there a guarantee that your company will retain you during and after this pandemic? You need to answer this to ensure that the expenditure costs mentioned above do not intrude into your savings. It undoubtedly becomes more relaxed in case of a double household income- where more than one person is earning to run the house.
Aashish Agarwal, Senior Director - head consulting services at Colliers International, India, says, “You must consider buying a new home only if you are absolutely sure of emergency reserves for your retirement and cases of sudden job loss.” He also adds, “Investors could lose about 80% if they were to invest in a volatile asset class compared to real estate, which is a long-term asset.”
Next, let's deal with what you expect from the property. Since the property is an investment, you need to weigh the possibilities of return on investment. If one were to look at NIFTY returns over a 10-year-period, it had delivered about 74 percent that works out to about 5.7 CAGR.
Homebuyers must calculate the interest and tax benefits that they are likely to get, especially if they are dealing in a property for the first time. Affordable housing products need detailed understanding and market analysis. If you are a novice in this industry and are confused about how to go about it, then it is a great idea to compare the current COVID-19 crisis to the Economic Meltdown in 2008. Finishing his explanation, Agarwal continues, “The present pandemic and following financial crisis have a stark difference when compared to the 2008 crisis. That time, the real estate market was booming as the crisis hit the market. Property values were increasing rapidly every financial quarter. On the other hand, Coronavirus has hit humankind at a time when the market has anyway been slow for nearly the last five years. That's why recovery can be delayed.”
Who is investing in properties right now?
Presently, buyers who have been investing in new properties are quite limited in number. Most of the buyers right now are those who had done market research way before Coronairus struck and had been waiting for the prices to drop. According to a real estate expert, this is the group that was seeking an opportunity to negotiate with the property seller.
Another category that has been investing in Indian properties is the NRI section. The value of rupee has gone down to almost 10% to a dollar. This has led to a discounted rate due to the currency exchange rates. Thus, COVID-19 has turned out to be just the right opportunity that they had been waiting for. ANAROCK's consumer survey for H2 2019 indicated that for 68 percent of NRI participants, real estate was considered the best asset class for investment, followed by 16 percent favoring stock markets.
As worrisome and concerning as the present crisis is, it is also a notably opportune time for NRIs to invest in Indian real estate and make profits on the shoulders of currency devaluation, record low prices, and the impending organic growth of Indian property markets, ANAROCK said.
Lastly, the third segment refers to the investors who, after wasting their money in equity, may not be looking to pick up some stressed real estate assets. Quoting a property broker, he said, “Investors are more concerned about long term assets and the returns it would fetch them than focusing on the integration.”
How should you negotiate in the present Indian real estate?
Before you set out to negotiate with a property dealer, it is important to do some basic homework. This includes factors such as the history of the seller, the present market conditions when you are dealing, the pros and cons of your private budget, and the reason why you are investing in real estate at the moment. Informed consultants and brokers can help you understand the financial situation better. The experts dive deep into the details and give you insights.
Do a little research regarding the property dealer's unsold inventory. Check if the listed price has gone down on other real estate websites. This gives you a rough idea of how much you can hackle. It also helps you understand the buyer's motive in selling it to you- whether it is a distress sale or he genuinely considers you a worthy buyer who will pay him a good price. Either way, you need to be cautious!
A buyer's negotiation power increases with the age of the property. If the property is old and has some unsold units, or if the builder is in a financial crisis, then there is a better chance of negotiation, from the buyer's perspective. To put it across in a nutshell, study about the particular project, the developer, his credibility and records, the property's location, the property prices, and so on.
The 21st century's market focuses on buyers' needs and demand. Since homes are necessities, they are always in demand. Moreover, the rapidly increasing Indian population is always migrating or looking for bigger homes to accommodate more members. Since buyers have several options to pick from, they have a higher negotiation possibility.
If you are a buyer, you must start your negotiation at something that is at least 10% to 15% lower than the quoted selling price. According to another real estate broker, you must establish that you are genuinely interested in buying the property instead of exploring other options in front of the dealer. Show the dealer that you are genuinely interested in closing the deal. This will genuinely lead him to negotiate properly.
Let's wrap up with the final takeaway.
Now, let's consider the final takeaways. Firstly, it is essential to buy property only from a branded developer. If you like a property today and want to block it, then the best thing to do is make a small down payment and block it. You can visit the plot once the lockdown ends and have a closer look. Discuss your queries with the broker, and they will guide you. Check the RERA website for details on project approvals and the timelines.
A real estate consultant explains that most buyers generally set out in search of a good deal once the loan approvals are cleared, and they have the necessary documents. However, an average buyer may not want to set foot in the market right now because the pandemic crisis has affected the banking sector as well. Some banks may not be lenient right now because they themselves are on the suffering end of the tunnel. The current market is unpredictable, and a buyer may be lucky enough to close a deal at a 20% discount, owing to the seller's financial stress.
To conclude, Agarwal adds, “You should not rush to buy a property merely because it is available at a cheaper rate right now. Problems related to the title, other claimants, and pending obligations can land you in trouble. Though the lockdown may seem like a good time to seek opportunities and capitalize on them, please remember that it is not the time to task risks.”
