Bottom Line: The slowdown in the Indian property market has yet again brought to the fore what has always been a wishful thought – buyers’ market!
Across the built environment of real estate, there is a critical evaluation of opportunity cost as the transactions are few and far between. The reports of price correction are lending credence to the theory that the property market in general and the housing market in particular has completely taken a ‘U’ turn in favour of the homebuyers.
Jagjeet Madhok, a prospective homebuyer in Gurgaon is extremely confident of the fact that real estate has turned out to be buyers’ market. He is today finding the same property in the secondary market at Rs. 9200 per sq feet that was selling at Rs. 9900 per sq feet only six months back. Not only this, one of has contacts has told him that even in the primary market he will get a deal that is 8-10% lower than the actual value of the property.
“I have been told the developer has not reduced his market price. But on a direct deal with him he has offered to pass on the high brokerage fee directly to the buyer. That is also a huge discount and no less than correction. This is like a dream offer; something that may not be there for long,” says Madhok.
What is buyers’ market?
- Price correction is not buyers’ market
- Buyers’ market has a symbiotic relation with affordability
- Any house that costs more than 5 years of gross income is not affordable
- Simultaneously, more than 50% of take home salary as EMI doesn’t indicate buyers’ market
Does this market reality make it the right time to buy a house? Jagjeet Madhok believes it is the perfect time. What then stops him from taking a plunge in the property market that is ideal buyers’ market for him?
“Well, frankly speaking, it has nothing to do with the price point. But my salary is very low at this point of time and the price of apartment is pretty high. Added to this, there is job insecurity all around and all that makes me sacred to commit for such a big invest for a long period of 20 years,” Madhok opens up.
In order to understand the dynamics of what really is a buyers’ market one needs to delve deeper. It is not just some price correction that can be termed as the buyers’ market. Affordability, of course, is a big factor but equally important is the job market in the given city. Inflation and interest rate come the next. An ideal buyers’ market has a combination of all the indicators showing positive signs in tandem.
“Even from the affordability standpoint, any house that costs more than five years of gross income is not affordable. Second simultaneous, and not alternate condition, is that the EMI should not exceed 50% of the take-home salary. On this benchmark, most of the properties in major Indian cities are not affordable. Buyers’ market is a myth,” explains Pranay Vakil, Chairman of Praron Consultancy.
It is true that given the price point in most of the key Indian cities, even the reported price correction does not make it a buyers’ market. The RBI Governor, Raghuram Rajan has hence advised the builders for a drastic cut in prices to sell the inventory. Earlier, a report by Ambit Capital had pointed out that the expected price crash could be even up to 50% in the key Indian cities, including Mumbai.
Does this market dynamics make it a buyers’ market. Definitely not now. The analysts are nevertheless debating whether this is the right time to buy a house.
Devina Ghildial, Managing Director, RICS, South Asia believes real estate values are governed by demand and supply. This may vary on a project-to-project basis. The projects that see good demand normally do not see a price correction. The common dilemma that the consumer poses is what is the right time to buy?
“The ‘right’ time to buy property is when you feel that you are ready for the responsibility that comes along with buying a property. It is important to consider the objectives of buying a property. Ask yourself why you want that property? What really is the motivating factor when it comes to your decision to buy that property? The more you know about why you should buy a property, the more focused your search will be and the better you will be able to select one that meets your requirements,” says Ghildial.
The debate of whether this is the right time to buy has always been there in the housing market. But the fact that an impression is gaining ground that the market has turned out to be buyers’ market is what is leading to a fresh debate of opportunity cost. For the end-users who need a house for self-use, this may be an opportunity with some price correction. It can nevertheless not be termed as a buyers’ market.
By: Ravi Sinha
