Why Home Buyers have opted "Wait and Watch" stand rather than buy Home?

The real estate sector has gone through one of the worst downward phases in the last couple of years, resulting in lower new launches, price reductions and higher unsold inventories. These dynamics forced developers to offer attractive deals, discounts and freebies, to attract buyers. First Demonetisation, and thereafter new act of RERA and GST implementations, during this transformation process, its clearly visible that large no of End users have opted 'wait and watch' stand, rather than buy Home, and other side significant nos of Investors and NRIs have preferred to stay away from property Investment. Even this festive season, as usual, was flooded with various offers to lure property buyers but the real fact is that it could not bring momentum back, the only positive sign is that home buyers visits across all projects have increased significantly and sale transactions started happening.

Here are few factors :

1) Price correction: We have been hearing from many different sources some of which predict that property prices will come down soon which is causing serious impact on buyers property buying decision. Developers will usually not come down on price corrections, but they may offer heavy discounts to serious buyers at the negotiation table. Real estate industry has been going through with slow down and significant drop in sales especially post demonetisation, hence property buyers and fence sitters are waiting for price correction regardless their hopes are realistic or not.

2) Lower rate of Interest: There is a perception in home buyers mind that due to demonetisation, Public and NBFC Lenders have got massive inflow, which may offer ever lowest rate of interest especially in mid segment. Simultaneously, interest rates have dropped from 10.75 per cent in 2008 to as low as 8.75 per cent today. To top it off, most developers have unleashed lucrative offers which result in further savings on the bottom line.However, bank has reduced rate of interest ever lowest in last 4 years and the lower interest rates coincide with a hard discount or some other money-saving offer lie No Pre - EMI till possession, Zero down payment etc still many buyers are awaiting for further reduction of rate of interest.

3) The Real Estate (Regulation and Development) Act: RERA has finally become a reality. Although there still are plenty of hiccups and it will take some time for the industry to absorb all the facets of the Act, it should be kept in mind that RERA is a process, not an event. Meanwhile, the question in property buyers’ minds is: Should they wait until the RERA process is streamlined, or should they purchase a home now? Buying a home is, in many cases, a once-in-a-lifetime event.

Yet, the ongoing implementation of RERA is making them pause.

Paradoxically, the announcement of RERA is now having a similar effect, largely because buyers are unsure of whether they will benefit from it immediately, or whether the benefits will take some more time to come in.

4) Goods and Service Tax (GST): With the introduction of the Goods and Services Tax (GST), the total incidence of tax will increase from 5.5 per cent to 12 per cent. However, developers will be able to avail of input credit, on all the goods and services purchased and spent in the construction of the property. The impact of the GST on property prices, will be difficult to gauge at this stage because of the lack of clarity on abatement for land value. In a product, where the major raw material is not covered by the GST and the completed unit is also not covered by the GST, the tax input benefit will be hard to calculate or justify. Only the market forces, the ready reckoner rates and time, will decide whether and how much benefit will be passed on by the developers to the purchasers therefore majority of home buyers are confused have opted wait and watch stand until Real Estate Developers come up with concrete stand on credit input.

5) Unavailability of ready stock or nearly completion inventory: With the implementation of the Real Estate (Regulation and Development) Act (RERA), the residential real estate industry is witnessing significant changes. The Act strictly charging heavy penalty on the account of delay in delivery therefore developers have increased substantial timeline for delivery, while allowing the freedom to attract buyers for projects that have Occupancy Certificates (OC) ready. With the new rules, buyers are naturally showing increasing interest in such properties, which are essentially ready-to-move-in rather than waiting for 4-7 years for possession.Nevertheless, buyers are now more than ready to purchase properties on an immediate basis, rather than waiting for the construction to be completed. There are very good reasons for buyers to look for properties that are ready-to-move-in, or OC-ready, in today’s market:

The GST on the entire cost of the project, including the land, will be levied at 12 per cent. This should be enough for the builder to claim input credit, thus, making OC-ready projects more economical for buyers. It is no secret that ready-possession projects are first preference of end users/first of buyers especially who are staying on rent and paying EMIs. Therefore, it makes sense for buyers to invest in ready-possession projects, rather than wait for new projects to come up over protracted periods of time.

The biggest challenge infant of developers is to cater significant demands for ready to move home and other side oversupply of under construction inventory where no choice to sale inventory by offering heavy discount or attractive Flexi payment plan.

At present, the real estate market in most cities is flush with options for buyers in most price brackets and developers have also kept various offers and schemes in place, to maintain the sales momentum. Prices have corrected in most locations. Indeed, buyers have every reason to view this as a favourable time for home purchase.

Indeed, buyers have every reason to view this as a favourable time for home purchase. We have seen an increase of 20-25 per cent in firmly-decided buyers in the last 3 months alone. The year 2018 will be an extremely important period for the Indian residential property sector as it waits for a larger chunk of buyers to hit the market and finally buy the homes they have been longing for.