Virtual Realty: Correction time

You are happy that the value of your real estate property has gone up several time in the last three-four years. But your happiness is short-lived when you decide to unlock the value. There is a marked difference between the perceived value and realised value. The buyer is not willing to pay the price you initially thought.

The concern that the property markets in various parts of the country is overheated, particularly in certain pockets of NCR and Mumbai, has been doing the rounds for almost the last 5-6 months. There are several reasons for that. Experts say that demand and supply mismatch is one of the reasons affordability is the other. Speculators have bought properties and now they demand an unrealistic premium.

“Affordability has been a prime concern. Speculative investors can hold on to a particular price for sometime, but beyond that, they would start to get jittery and sell off at whatever price is available to him,” says DTZ India managing director Ankur Srivastava.

Experienced developers do not foresee any sudden change in the market, however, they are cautious. According to DLF vice-chairman Rajiv Singh, there is no need to panic as the fundamentals of the industry are strongly in place. “In certain pockets, the market has grown at unrealistic rates. There could be a slowdown in the rate of growth and the sector will continue to grow at a more realistic pace.”

He says that developers as well as investors must keep end-users in mind before positioning a property. “Of course, no one can rule out affordability as being a key criteria,” Mr Singh said. Big and experienced developers have played safe. They have created products according their target customers and priced it accordingly.

Unitech managing director Sanjay Chandra says that there is no reason to worry. “There are minor corrections in some B-grade properties. Once any correction takes place, small developers and fly-by-night operators would face difficulty in disposing off B-grade properties both in commercial as well as residential segments. Buyers’ interest lie in good quality real estate,” he said.

Affordability factor has been raised by many brokers, who actually deal with end-users. They say that in the current market scenario, a Rs 35-50 lakh pricing can be considered realistic, for middle and upper-middle class consumers. “If a family’s income is in the range of Rs 1-1.5 lakh per month, one may shell out a maximum Rs 50,000 towards EMI. Any property, priced above Rs 50 lakh, is unaffordable for this class,” Mr Ved Pal of Ved Properties said. He is a leading property broker in Gurgaon.

Sources say that in view of the sky-high property prices, there has been a major decline in end-user transactions in areas such as Gurgaon, Noida, Navi Mumbai and Mysore. “To a great extent, this has led to pricing being only notional. This is further proven by the fact that property prices in the secondary markets, is a significant 15-20% lesser than that in the primary market,” Mr Pal said.

But there are some who do not buy the theory of over-supply. CBRE managing director Anshuman Magazine is of the view that “oversupply of properties is just on paper and not in real terms. “Many projects are in the pipeline and been announced recently. We really don’t know, what lies ahead in future as these projects come up,” he added.