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Buyers treading cautiously
Source : The Hindu Property Plus Published On : 2009-03-14 City : Chennai

The reality sector in general and housing market in particular had a dream run in the last few years. Increase in salary levels and easy availability of credit helped the turn around. The average age of home mortgage consumer dropped from late thirties to late twenties With the IT sector on the rise, investment in the real estate also increased. Apartment sizes, specifications, delivery terms and price band were matched with the boom. But the current economic slowdown has changed the scenario significantly and has forced the homebuyers and developers to re-orient their strategies.

New offers

N. Ananthanarayanan, Head REIS, Jones Lang LaSalle Meghraj, says that the buyers are now getting calculative and wants to probe factors such as falling prices of cement and steel, construction cost and reduction in service tax and wants to know how these are reflected in the new offers.

Mr. Ananthanarayanan says buyers are also now examining the actual carpet area that they get in comparison to the area that they pay for. He also points out that today, the buyers are looking at the terms of payment and penalties carefully and wants a fair deal. They ask for compensation for any delay in delivery of the completed apartment commensurate with the loss of income or the rent.

Some have even started demanding that payments be linked to the construction stage, and not make it time bound, as they want cash flow to reflect progress of construction. These demands are strengthened by the perception that they may get better bargains in the days to come. The fact that leading builders including DLF have continuously come out with price reductions has strengthened this, says V. Kalyanaraman, Director, Yeskay Promag Consultancy Pvt Ltd.

With the interest rates starting to come, many prospective buyers feel that it would be worthwhile to re-plan their purchases and wait for a better rate.

Awareness growing

Consumers’ awareness about the developing scenario has increased in recent times and it has become important for the developers to keep the buyers informed. For example in the DLF case, about 150 consumers decided to quit the project as they were not kept updated on development of the progress. The questions raised by them were – will the project be delivered on time, what is the operational model of the clubhouse, practice of selling undivided share of land, comparing prices between DLF’s two projects, funding position and operating cost of the company.

With all these demands coming from the end consumers, DLF needed to rework their approach. They addressed their buyers and explained the situation.

Many big developers, who started constructing mega projects, have begun to scale down and re-design them. They are entering budget housing projects such as one or two-bedroom apartments. The risk is spread by cutting down the unit size.

Plans to construct three to five mega towers are now scaled down and in their place only one or two towers are built. The customers are also re-located within the same development, so that the required built up area could be completed within the committed deadlines, says Mr. Kalyanaraman.

Huge gap

There is a huge gap between the expectations of the buyer and the builder. Today the buyer expects the prices to slide further and is in no hurry to close the transaction. On the other hand builder faces a challenge with their cash flow affected. “Knowing that the demand is still high builders will have to focus on completing projects as buyers will immediately lap up projects that are ready for immediate consumption as long as they are within their affordability”, says R. Balaji, Chief Executive Officer, Prop mart.

The bankers too are playing a cautious role. The delay in completing the projects and drop in salary levels concerns them. The financial instutions, who went overboard, are slowing down and exploring new products such as financing second hand apartments. The three factors – customers, developers and bankers, taking a cautious step has only led to a slow down in the residential sector growth. Everyone agrees that the market will bounce back as there is a real latent demand. The key to this is “affordability.”

 
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