The Real Picture: Short-Term Investor Takes A Step Back; End-Users Are In Plenty

Who is looking to buy today? Industry experts see the investor class rolling back. Is it so or is it too early to comment? Shubhranshu Pani, managing Director-infrastructure at Jones Lang LaSalle, says that two kinds of investors have moved out of the market – those who had been speculating and those who were eyeing interest benefits. Now, those who are looking to stay (end-use) are the ones actively researching for property. Among this class of homebuyers, the demand has not died.

Who is opting out?

Deepesh Salgia, director, Shapoorji Pallonji Real Estate, says: “Those who were looking to flip property within one or two years may keep off the market but long-term investors will continue. Flipping property in the short term has become unattractive because transaction costs are high.”

Mid-range homes, therefore, are popular. “For developers, recovery is only in the mid-segment,” says Anand Narayanan, president-sales, marketing & CRM, Purvankara.

Signature Global Group Chairman PK Aggarwal says that investor's disinterest is because he knows that prices wouldn't go up now.

“In 2006-07, the number of investors was more but now, end-users are in plenty. In most households, the husband and wife can together afford an EMI spend of Rs 12,000-13,000 per month, and they are looking out to make a cautious purchase. I would say, buy now or within five years or such a time wouldn't come back again,” says Aggarwal, who is also chairman of the Assocham Affordable Housing Committee.

Bad market versus bad perception

It is difficult to answer the question what ails India's real estate today. Is it the bad market or the bad perception?

“There needs to be government intervention in this regard. Buyers are often worried about issue of land titles and fraud. There should be special tribunals in each state for all land cases just like the Real Estate Regulatory Authority in each state. Speedy approvals will also build trust among prospective buyers,” says Salgia.

Developers today realise that money generation has become more important than anything else. Therefore, pricing strategies would be tweaked.

“It can no longer be easily discerned whether an adjacent project boasting similar amenities would command a similar price, too. Even in the case of new launches, developers should be ready to re-price and pass on the benefit to buyers,” says Pani.

This is equally important because, as Gaurav Wahi, Senior VP and Head of Strategic Consulting, North India, Jones Lang LaSalle, says, nobody is willing to give more than 10 per cent of the project cost upfront. Therefore, if end-users must be targeted, it has to be with the right marketing strategy. Additionally, the RERA has made the customer aware and upped scrutiny.

Who is the developer targeting?

Jyoti Prakash Gadia, MD, Resurgent India, says: “If an end-user's annual income is one-fifth the cost of the project, he is the ideal target audience.” Essentially, a developer's finances comes from promoter's contribution (about 10 per cent), term loans (about 15 per cent) and as advance from customers (about 75 per cent). However, on an average, an Indian household has only two per cent as fixed income, two per cent in equities, 18 per cent as cash and 48 per cent as alternative investments. If the developer's pricing is too high, it would be very difficult for an end-user to invest.