Job stability to determine whether this is the best time to buy property

[ecis2016.org] Even though it makes perfect monetary sense to buy a property now, buyers must consider job stability before investing in a high-value asset such as real estate

The Coronavirus pandemic has paralysed the global economy and affected almost every human, including home buyers, in some manner or other. People seeking properties at any point of time, are often told that ‘this is the best time to buy property’ and that they stand to lose a golden opportunity if they do not invest immediately. While there may be merits to this argument, especially in the present scenario, there are many other factors that one must consider.

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Property price correction in India

Buying home in India has suddenly become much cheaper than it has probably been in the past half-a-decade. After the liberalisation of the Indian economy in the 1990s, the growth of industries created scores of job opportunities in city centres. Consequently, a large number of people moved to these growth centres, fuelling the demand for housing, in terms of property sales and rental.

By 2013, properties became so overpriced and misuse of their dominant position by the developer community so common that buyers were left with no choice but to adopt an impervious approach towards real estate. Although real estate remained the most desired asset in the country, buyers turned into fence-sitters.

This was reflected in the absorption trend. ecis2016.org data show that only 49,448 units were sold during the April-June period in 2015 across India’s nine prime residential markets, as against 89,932 units sold in the same period a year ago. Even though sales during the festive season (October-December) that year stood at 53,000 units, this period is viewed as the best time to buy property in India and the increase was, hence, not unexpected.

The number of apartments sold in Q3 FY16 was 30% lower than the number of apartments sold in Q3 FY15. From that period onwards, sales numbers have remained muted. With regulatory changes, such as the Real Estate Act (RERA), GST, demonetisation, the Benami Property Law, the Bankruptcy Code, etc., supply too declined. According to the latest numbers available with ecis2016.org, 19,865 new units were launched across India’s eight markets while a total of 35,132 homes were sold during the July to September period of 2020, at a time when the government started the phased unlocking of the economy, after a prolonged lockdown that started in March.

Being the second-largest employment generating sector in India after agriculture, real estate plays a major role in shaping the overall economic growth. As the sector came to a standstill, hurried measures were launched by the government and policy-making bodies, to revive buyer sentiment. The country’s banking regulator lowered the repo rate to a 15-year low of 4% after consecutive cuts. Financial institutions have subsequently lowered the overall pricing of their home loan products. Most public sector banks are currently offering housing loans at below 7% annual interest.

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Even though developers are not prompt to admit it, property values have also undergone a significant correction in a majority of residential markets in the past five years, because of a general demand slowdown Nevertheless this does not indicate that property is not overpriced in these markets.

According to Shalin Raina, MD-residential services, Cushman and Wakefield, property prices in the NCR have corrected significantly over the last few years. The Coronavirus-induced emergency has put further pressure on the developer community, to negotiate on prices and offer rebates over five to 10 months, Raina says.

Another factor that works in favour of buyers who are looking to invest right now, is the fact that developers in India currently have over 7.38 lakh unsold housing units. This means a buyer can easily book ready-to-move-in homes, where they do not have to worry about project delays. As developers have to pay taxes to the government on unsold units, they are keen to sell off this ready stock at attractive discounts. Moreover, one can also avail of additional discounts during the festive season.

Job losses in India due to COVID-19

Purely from the point of view of affordability, this may be the best time to buy property. India’s housing market could have also sprung out of the multi-year slump based on this, if only there had been no change in the job market and the incomes of those in need of housing. Unfortunately, that has not been the case.

According to the Centre for Monitoring India Economy, five million salaried employees lost their jobs in India, in the month of July 2020, because of the Coronavirus-induced economic woes. While salaried jobs are not lost easily, says the CMIE, once lost, they are also far more difficult to retrieve. This means all optimistic predictions on the revival of the economy and the job market, in the short-term, could be ruled out.

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On September 24, 2020, US Federal Reserve vice-chair Richard Clarida, conceded the economy in that country was in a ‘deep hole of joblessness and weak demand’. His comment resulted in the Sensex posting its biggest single-day fall in four months. On September 24, 2020, the BSE Sensex fell 1,115 points, or 3%, to end at 36,554, its lowest close since July 10 and the biggest drop since May 18, 2020. India also currently has the second-largest number of COVID-19 positive cases after the US. Hence, hopes of a quick recovery, may not materialise.

In such a scenario, buyers need to remain cautious. Depending on your sector and your age, your job might not be averse to risks, even if you have managed to stay safe so far. These risk would be greater for people above the age of 50, considering that such people would typically be at higher levels and expensive resources for their respective companies. More importantly, finding another job that suits your profile and the remuneration, could be a daunting task.

Is it a good time to buy property after COVID-19?

For investors, who are monetarily in a comfortable position, now is a good time to buy properties, considering the price benefits. However, investors in the second homes segment, must remember that rentals are already undergoing a major correction across major Indian cities, as remote working forces a large part of the migrant population living in these urban centres to move to their native places in tier-2 and tier-3 cities. The demand for rental accommodations might also be impacted, as the demand for homes may increase, because of all the increased affordability of property ownership.

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“For end-users with a stable job / business, it is a great time to invest in residential realty, with proper due diligence on the developer / short-listed project,” opines Raina.

Those who are certain that they are in a financially strong position and would be able to withstand the economic repercussions of the move, should also be extremely cautious about the property selection, advises Lalit Duggal, a realty broker based out of south Delhi. “Home-buying has long-term implications and it is not just monetary. Most buyers currently peg their home purchases, based on the prevailing conditions. As remote working is the new normal, most people are looking for homes along the fringe areas of cities. Sometimes, they may lose sight of the fact that market conditions may reverse, offices may reopen and being far from the city centres might not be a great idea after all. A buyer’s property selection must not be driven entirely by the prevailing market condition, no matter how overwhelming they are,” says Duggal.

[ecis2016.org] Problems faced by buyers while buying property in 2020

Tips for investing in property in a post-Coronavirus world

All points considered, real estate buyers today are in a unique position and can make the most of this opportunity, if one has the wherewithal to invest in property. Unlike in the past, developers are more willing to sit across the table and negotiate an offer that is profitable to the buyer, on terms and conditions that are not tilted in favour of the developer.

“Since all other sources of liquidity are drying up, the end-user is the only hope for India’s cash-starved builders. The bargaining power that the buyer enjoys currently could simply be termed as unforeseen,” says Brajesh Mishra, a Gurgaon-based lawyer, with specialisation in property transactions.

To make this opportunity even more profitable, a buyer must, however, take note of various factors. If they are applying for a home loan, they should not select a lender, merely because that bank is offering the lowest interest rate right now.

“Just like the builder, you also must pay attention to the bank’s brand image. Before you go to them, you should run a check on them to find out how they have traditionally been, in terms of policy transmission. What are the additional charges they will make you pay? Has your bank recently been caught in any sort of controversy? It is only after getting satisfactory answers to all these questions, should you select your bank,” says Neeraj Kumar (name changed on request), a banking official working with a leading public sector bank. According to Kumar, this is also a good time to choose a fixed rate home loan interest, considering that interest rates are at a record low.

Owing to the labour shortage and supply concerns, project delays are likely to prolong across India’s key markets. This means, investing in under-construction projects should be avoided right now, even though there are obvious price benefits on the purchase of homes in new projects, says Mishra. Ensure that the developer has received all necessary approvals from all authorities concerned, before you strike a deal for a ready-to-move-in property.

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Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle