Residential market looks up

A good year for residential sector, not a full recovery for the commercial sector, status quo in terms of Bangalore’s infrastructure...That has been the story of the year gone by for the real estate sector.

According to a survey by makaan.com, “the year 2010 can be considered a mixed year for the Indian real estate sector. The industry displayed some positive signs of revival with homebuyers and investors coming back to the property market on the back of a higher consumer confidence and the promise of sustained GDP growth. This lead to hardening of the property prices in the beginning of 2010. The home prices moved up at a brisk pace during Oct 2009 to March 2010. The sudden and steep rise in prices created a fear in the mind of the genuine homebuyers and they adapted a wait and watch approach during the second half of 2010.”

RBI’s moves

The survey points out that the year 2010 also saw RBI tightening the flow of “easy money” into the Indian real estate sector. Steps like increase in risk weightage on bank lending to realty companies, ending the teaser home loan regime, higher provisioning for home loan above 75 lakh and RBI’s overall guidance towards high interest rate regime brought some sanity in the property market. According to the survey, “the end of 2010 exposed glaring gaps in the procedure adopted by some banking officials in sanctioning loans to realty companies. This disclosure by CBI along with RBI interventions kept the property prices under check for the second half of 2010 and prevented a potential bubble from being formed.” 

The major findings of the survey are:

More tax rebate sought

The Indian real estate sector has gone through major ups and downs in the last 24 months. When asked to give their advice on the one thing that will have a positive impact on Indian real estate sector in 2011, nationally, 32% of home buyers wished for increase in income tax exemption limit on repayment of interest on home loan from current 1.5 lakh pa to 3 lakh pa. This is understandable as the current limit of 1.5 lakh has become insufficient (when seen in light of the jump in property prices over the last 5-7 years). The limit has not kept pace with the price rise and hence should be revised upwards. 

Super area vs carpet area

The next advice from the home buyers is to resolve the constant conflict of super area vs carpet area. As much as 31% of home buyers have suggested that developers should only charge on the carpet area rather super area.

According to them, this will bring more transparency, as carpet area is measurable as against the latter which in most cases is ambiguous.

Another 12% home buyers believe that developers should start charging only after the project construction is completed. This will put positive pressure on the developers and they will complete their projects on time.

As much as 39% of Bangalore home buyers are advising the Indian government to increases income tax exemption on home loan interest repayment from 1.5 lakh to 3 lakh p.a. Another 22% respondents from capital feel that if the developers started charging on carpet area than super area; the sector could see more transactions in 2011. 

Home loan interest rates

When it comes to buying a house; arranging funds becomes the most important aspect, especially in case of a working professional. It is only with the help of a home loan that a buyer can think of making a property investment. In the current scenario when RBI is advocating for hardening of interest rates; home loans are likely to increase in 2011. When we asked home buyers on how they felt home loans would move in 2011; majority expected the home loan rate to move up in 2011.  A total of 49% of national home buyers feel that home loan rates are expected to increase in 2011. At least 26% are more optimistic and feel that interest on home loans would fall in 2011. The rest feel that home loans would remain stable over the coming year. 

Bangalore homebuyer’s point of view: Homebuyers from the city seemed to have sensed the future trend of the home loan market. Maximum (47%) survey takers from Bangalore are anticipating an increase in home loan rates over the next 12 months. It’s also interesting to know that 32% survey takers from the city are expecting home loan rates to remain unchanged in 2011. Another 21% feel that home loan rates would go up during the same period. 

Price correction

The meltdown of 2008 and early 2009 saw the property prices correct by 25-30% in major Indian cities. Post meltdown period saw a very smart recovery over the second half of 2009 & 2010. Today the property prices seem to have come full circle in major Indian cities. The sudden drop followed by an equally sharp rise, has left many homebuyers wondering regarding the genuineness of these moves. 

An overwhelming majority of national home buyers are expecting a correction in property prices in 2011. 

A major chunk of 40% are expecting property prices to correct by upto 20% while another 15% are more optimistic and are expecting a correction of more than 20%. On the other hand 18% are of the belief that property prices would rise in 2011. The remaining 27% are predicting for stability in property prices over the next 12 months. 

Driven by the end-user

The new year is going to be yet another year that will be dominated by end users. With improving economy and better job security; home buyers seem more confident for making a property purchase in 2011. We asked majority home buyers want to buy a house for self consumption.

A whopping 70% of the national home buyers want to buy a house for self consumption. It is interesting to know that 20% are looking at buying a house purely from long-term investment (time horizon more than three years) and another 10% are looking at investing for short term (time horizon 1-3 years)

Bangalore homebuyer’s point of view: Another highlight from the city findings is that most of the real estate purchases that are likely to happen in 2011 would be for self occupation.

A whopping 77% of Bangalore respondents have confirmed that they are looking at buying a house for self consumption. 14% are long term investors. This also makes Bangalore as the only city which has the least number of respondents planning a long term realty investment in 2011. Only 9 % property seekers are planning to buy a house for a short term gain. 

Investment destination

The results show that metro cities continue to attract majority of seekers with 77% of the respondents wanting to buy a house in the four major cities of India (Mumbai, Delhi, Pune and Bangalore). 

 Among all cities, Mumbai is considered to be the most sought after location for real estate investment in 2011. 36% of home buyers want to own a house in the city.
Delhi follows Mumbai with 21% buyers willing to buy a property here.

Delhi has witnessed healthy growth in infrastructural development with a new international airport and spread of metro services to the NCR region.

This will attract higher adoption in the coming years.  Among the other major cities Pune (11%), Bangalore (10%) & Hyderabad (7%) are the key real estate investment destinations of 2011.

Beyond the top five cities, homebuyers have shown a preference for Ahmedabad (4%) Kolkata (3%) and Chennai (3%).