Realty Check | Day 5 | Sumit Jain: High demand for Ready-to-Move-in Properties

12 Aug,2014

By Sumit Jain

Co-founder and CEO, CommonFloor.com

 

The Indian real estate market has witnessed the emergence of various trends over the last one year. And one significant trend seen is the increased demand for ready-to-move-in properties. Various factors are responsible for this rise in demand. Inordinate delay in project delivery, leading to increased pressure of EMIs plus rental values,has pushed demand for ready-to-move-in projects pan-India. Additionally, a number of projects have been completed recently and are ready to occupy.

 

Figure 1

Source: CommonFloor.com Listing Data

 

Ready-to-occupy property market

According to data, there has been a decent rise in the number of ready-to-occupy property listings over the last one year across cities. Figure 1 indicates that while most cities saw a significant increase in the number of ready-to-occupy property listings, MMR and Chennai regions were seen to be more or less stagnant. This could be attributed to various reasons.

 

In MMR – Mumbai, Thane and Navi Mumbai – property prices have become unaffordable for many. Property buyers were hoping for some price corrections but no significant change was seen with exceptions of minor corrections (within 5 per cent) in certain localities. Hence, buyers preferred to wait and watch. Developers, on the other hand, are reluctant to offer any discount on account of increased input cost and high capital cost due to high interest rates. As a result, property prices have reached their peak and sales have been stagnant.

 

In Chennai, too, the ready-to-occupy property listings remained stagnant over the year. The overall economic environment could be one of the major reasons for this. However, real estate activity is expected to pick up over the next few months.

 

Bengaluru saw a significant increase in the number of ready-to-occupy property listings. Q1-2014 witnessed an increase of almost 35 per cent in ready-to-occupy listings as compared to previous quarter (Q3-2013). This is primarily because most of projects have completed resulting in ample supply. The trend shows that there is an increasing interest for ready-to-occupy property as against under construction. There have been inordinate delays in several under construction properties due to multiple reasons and buyers, in turn, have to suffer. Hence, they prefer to opt for properties where they can instantly move in.

 

Surprisingly, NCR has seen about 19 percent increase in Q1-2014 as compared to Q3-2013. This increase can be seen particularly because the investors are seen to exit the market and they released their inventories. They are also offering discounts in the tune of 15-25 per cent in order to lure the customers. According to CommonFloor data, several projects have completed over the last one year and there is ample ready-to-occupy supply available in the market. On the other hand, various under construction properties are being delayed on account of low sales resulting in fund crunch etc. Moreover ready-to-occupy properties offer various benefits such as –

 

:: Tax benefits such as no service tax

:: Immediate rental income or saving of rent, and

:: Less risk of interest-burden when construction is delayed.

 

Figure 2

Source: CommonFloor.com Listing Data

 

Under-construction property market

Figure 2 clearly shows the declining trend of under construction property listings. This can be attributed to various reasons. According to CommonFloor quarterly report – Q4 2013, the overall new launches of projects in top seven cities including NCR, Bangalore, Chennai, Pune, Hyderabad, MMR and Kolkata declined by 18 per cent as against the same quarter in 2012. Grim economic scenario coupled with rising interest rates, high inflation and depreciating rupee resulted in low buyer sentiment and hence decline in launches.

 

Moreover, CommonFloor survey conducted earlier on post-election expectations confirmed the fact that a stable government with new reforms in the sector would give a major fillip to the real estate industry. The survey also strengthened the fact that buyers, in the current scenario, preferred to opt for ready-to-occupy property as against under constructed.

 

As per CommonFloor Listings data, there was a significant decline in the number of listings for under construction properties in Q1 2014 as compared to Q4 2013. Chennai witnessed maximum decline of about 40 per cent followed by MMR which saw a decline of 37 per cent, Bengaluru by 35 per cent, Pune by 32 per cent and NCR by 26 per cent. This decline clearly highlights the growing preference of property buyers. Demand is now tilted towards ready-to-occupy properties as investors are taking a back seat and now the realty sector is being driven largely by the end-usersin most metros.

 

However, the debate on ready-to-occupy vs under construction properties is a never-ending one and will seldom find a concrete conclusion. Sheer attractiveness in terms of monetary benefits might attract denizens for under-construction property. But the bottom line is that one should carefully analyse the pros and cons of both and accordingly base his/her decision. For immediate requirement, it makes sense to opt for ready-to-move in properties. On the other hand, if one is looking for higher returns and has high risk-taking appetite then he may opt for under-construction properties. But, unlike earlier, new trends are emerging that are all set to shape the future of the Indian real estate market.

 

Coordinated by Shobhana Nair

 

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