Current buying trends are a result of key consumer preferences and parameters. MONISHA RAO explores the drivers that dictate purchase in the challenging real estate market.
The sluggish economy coupled with minimal salary increments among consumers did not work in favour of the real estate sector in 2013. High property prices together with high home loan rates have had a significant impact on the affordability index, leading to low housing demand.
To make the most of this scenario, developers tried their best to lure buyers with price discounts, tempting free launch offers, celebrity brand and other freebies. CW PROPERTY TODAY talks to industry leaders in the realty space to find out the current buying sentiments and the requirements of consumers in the real estate sector in 2014.
Regardless of market conditions, the residential segment in the country is undoubtedly the main driving force of the Indian real estate market. This is supported by the fact that there is huge demand for housing in a populous country like ours. However, this large demand is not always complemented by a good absorption rate in a price-sensitive country. The rising real estate prices in the last quarter have had a notable impact on the segment that takes loans: middle income. Delhi-based Rahul Rewal, Owner, Mark Estates, affirms, "The middle income group has become slow in its prospects of purchasing real estate." However, there has been a correction in price in the past two quarters. With an average dip of around 15 to 20 per cent, prices have become attractive in the high-end segment. As Rewal adds, "The luxury segment - above Rs 3 crore - certainly reflects buoyancy." On the other hand, Ganesh Vasudevan, CEO, Indiaproperty.com, from Chennai points out, "The majority of the market is about the affordable mid segment one." (see pie chart 1).
While the residential segment unanimously generates the maximum demand in the real estate sector, different parts of the country indicate varying trends (see chart 3). While Rewal states, "Delhi NCR is the biggest market in terms of volume, followed by Mumbai, Bengaluru, Chennai and Pune", Sharma explains, "The highest demand for us comes from Mumbai and especially developing areas such as Thane, Kharghar, Airoli, Panvel, Kamothe, Vashi, Mira Road and Bhayandar.
This clearly indicates that buyers are looking for affordable properties closer to the expensive ones."
As for the commercial sector, "Demand has remained subdued over the past three-four years," says Vineet Singh, Business Head, 99acres.com. Corporate houses have been downsizing their space requirements and are relocating to peripheral markets. "While they seem to continue their focus on optimal space utilisation and cost-cutting measures, transaction activity has remained limited to small and medium-sized space despite excess availability," says Pankaj Malhotra, Sole Proprietor, Golden Nest Real Estate Consultants. The retail sector in real estate too has had its ups and downs. "With FDI, it has got investors thinking about its future growth potential. However, while the sector has witnessed the emergence of a number of malls in the country, not all of them seem to be doing well," he adds. That said, top brands in the world are the only ones that can sustain in malls and are definitely here to stay. The hospitality sector too has opened new avenue for investments.
Making the right choice
Keeping the demand front aside, there are key parameters that dictate the purchase of properties. Developers launching projects in multiple areas of cities have not only led to oversupply but have left too much of a choice for buyers. Hence, it is critical for a developer to gauge the parameters on which a property purchase is made.
The Indian real estate market is price sensitive irrespective of the investor (25 per cent) or end consumer (75 per cent)," says Singh. The parameters also depend on the purpose of purchase. Advitiya Sharma, Co-Founder & Marketing Head, Housing.com, says, "For relocation purposes, price, locality, proximity to office or schools (place of interest), number of bedrooms, society amenities and ease of commute play deciding factors while parameters for investment purposes include price trends, prime location, rent yield and how hot the area is for renters." Needless to say, price plays the deciding role in both segments. Indeed, there is a distinct change in the vocabulary of the buyer across the country. Indian consumers have become more aware of real estate market trends that help them gauge their budget and requirement preferences. As assessed by Sharma, the demand for 2BHK and 3BHK is highest in Tier-2 cities, while the demand is highest for 1BHK and 2BHK in Tier-I cities (see chart 2).
With reference to the commercial and retail sector, connectivity is a priority followed by space, budget and amenities. Rewal states, "Fortune 500 companies are looking for Grade A buildings with good parking and backup facilities and good services. While a few companies demand visibility, it is not the primary requirement."
Established, high real estate pricing has affected buying sentiments in the market. Moreover, rising home loan interest rates coupled with high repo rate do not make home loans a viable option. Further, buyers today are also worried about the slow pace of construction. While the average period of delivery was 30 to 32 months earlier, it has almost doubled to 60 months now.
In such a scenario, industry experts believe that while affordability is the only way forward in the real estate sector, emphasis on timely delivery on projects is a must. "The challenge for developers is to come up with price points to target the segment that generates the maximum demand for housing - the affordable segment," says Vasudevan. "There is a pent-up demand in the market that will start materialising in FY15." With demand existing in the market, it is now a question of how developers gauge the requirement to deliver timely projects to the right target customers.
Law of the Land
Buyers are also eyeing land development in the country as a possible real estate investment. These include plots on the outskirts of cities in residential gated communities. Pankaj Malhotra, Sole Proprietor, Golden Nest Real Estate Consultants, says, "This segment is well sought after in India as the value of land always appreciates." Real estate has two components when you construct on a plot: the plot and the building. While the value of land continues to appreciate, the value of the building depends on factors such as quality, maintenance and planning. However, it takes long for a buyer to settle on a land purchase as thorough research must be carried out regarding the law of land in the area as it differs from state to state.
BUYERS' CHOICE SURVEY
Analysis of the current buying trend and market sentiment in the real estate sector plays a pivotal role in determining the nature of the project to be delivered and the apt target audience.
For this purpose, this year CW PROPERTY TODAY once again conducted an industry survey in March 2014. While the survey conducted last year was limited to the residential and commercial segments, this has been upscaled to include two more segments - IT and hospitality - keeping in mind the wide investment opportunities these segments offer. The respondents were realtors from Tier-I and Tier-II cities of the country who were asked to fill up a questionnaire. Main parameters such as price, goodwill of the builder, green features, etc, which predominantly lead to property purchases were listed and divided into segments. These parameters were then rated on a scale of 1-5 (1 being most important). Location preferences and their proximity to social infrastructure were also noted.
The following tables depicts the current trends and preference in the real estate market: