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What Do Buyers Want?

May 2015
The real-estate sector, unlike any other, heavily depends on buyer demand. With projects being launched by the day, CW PROPERTY TODAY delves deeper to discover the preferences of the people.

While it may appear simple to understand the preference of buyers in terms of area, amenities, location or category of a project, pricing strategy is the main challenge. According to Ashutosh Limaye, Head-Research & Real Estate Intelligence Service, JLL India, ¨The only way to understand the buyers´ price preference is through ´price discovery´, where developers quote differential prices to gauge the market response and accordingly adjust the price.¨

Explaining the importance of such analysis, Munish Doshi, Managing Director, ACME Housing, says, ¨The micro-market takes precedence in understanding buyer preference and a survey before starting any project is vital.¨ Inventories can pile up if a particular project does not subscribe to the demands of the locality. Meanwhile, research allows realty portals to match the right properties to the right buyers. Azeem Zainulbhai, CFO, Housing.com, says, ¨We are a data company and track data from multiple sources, including internal traffic data to government sources and data that is purchased.¨ Using a sophisticated algorithm, the vast amount of data is crunched down to understand the demand of consumers in terms of unit preference, locality, and interest in buying or renting. It also helps portals bring latent demand to the forefront, increasing avenues for the developers.

Buyers´ wishlist
¨It is a mix of location, affordability and amenities packaged with the right pricing,¨ believes Farook Mahmood, Chairman & Managing Director, Silverline Realty; President, FIABCI WCB. And HL Bagra, President, National Association of Realtors (NAR), says, ¨The surrounding areas near upcoming metros have generated a lot of demand.¨ At present, there is demand for ready-to-move-in apartments, mainly from first-time buyers, while the buyers looking to upgrade are comfortable waiting. Amenities available in projects like gyms, security, playgrounds and, most important, maintenance have also taken precedence.

Needless to say, location and proper infrastructure like transport are vital criteria with social infrastructure, like schools, markets, sewage systems, and so on, high on priority.

The reputation and track record of the developer for timely delivery and quality construction are also very important while selecting a project.

What´s trending?
Currently, high-end buyers and investors are few in the market and affordable housing is the mantra. In fact, budget constraints have upped the demand for compact houses. In the early 2000s, a 2 BHK was around 800-900 sq ft; till the past two years, it had shot up to 1,200-1,300 sq ft; now, the compact units are again the norm as buyers look for affordability along with more rooms per unit.

Still, don´t rule out the luxe segment completely. ¨Demand for plotted developments has been steady across leading cities, as from an investor´s perspective, it provides more capital appreciation than apartment units¨ says Anshuman Magazine, Chairman and Managing Director, CBRE South Asia Pvt Ltd. And Limaye feels, ¨The market for luxury, branded properties might see a surge in demand with Indians getting more aware and comfortable in selecting such kind of products.¨

However, Mahmood disagrees, asserting, ¨Only the rich can afford luxury, branded properties. Also, as land is not readily available, even the demand for plots is a very niche segment.¨

Another significant trend is the increasing acceptance of online portals, which has expanded the buyer base for developers. ¨The buyer is aware about the quality of the data available on the sector and is increasingly making use of it to make informed decisions,¨ observes Zainulbhai.

From 2014 to 2015
So, how has the sector fared compared to the year before? Let´s take a look across segments:

Residential:
The year 2015 was to usher in a promising era for the real-estate sector with the new government focusing on reviving the economy. While the sector was poised for takeoff, the reality has been slightly different. ¨The situation in 2015 is similar to 2014; there has been slight improvement but buyer sentiment across the country is really terrible,¨ says Bagra. Stagnant sales bog the sector even after stable pricing. In the past year, the top seven cities saw sales of around 40,000 to 45,000 units per quarter, a drop from 50,000 to 55,000 units from two years ago. The Pune and Chennai markets have positive demand with moderate demand in Bengaluru, Hyderabad and Kolkata, whereas the Delhi and Mumbai markets, including Thane and Navi Mumbai, are undergoing a slowdown.

Retail:
According to Limaye, ¨Last year was one of the worst for retail, with only around 1.2 million sq ft being leased, an all-time low since 2008.¨ The main reason was the severe delay in the completion of malls, but with many projects aiming for completion in 2015, a peak in demand will be seen. Around 4.5 million sq ft of space is expected to be leased, almost four times that of 2014.

Commercial:
Perhaps the bright spot in the sector would be the commercial segment, which continues to be positive in selected cities. In 2014, the amount of space leased was around 28.9 million sq ft, and this year, it is expected to easily cross 30 million sq ft. The demand is mainly in the top six cities, namely, Mumbai, Delhi, Bengaluru, Chennai, Pune and Hyderabad in that order. The reasons for demand include the positive GDP forecast, controlled inflation and increased industrial output. The IT sector and major e-commerce players are big drivers of demand.

The challenges
With increasing land acquisition costs and growing construction costs owing to a rise in prices of raw materials and labour, overall costs are going up. And piling up of inventory restricts cash flow for developers. According to Doshi, ¨The lack of clarity and certitude in governmental policies leads to confusion for developers as well as buyers and the wait-and-watch approach adopted is responsible for the slowdown.¨

Highlighting the funding challenges to the sector, Dhaval Ajmera, Director, Ajmera Realty & Infra India, says, ¨The interest on lending rates for the real-estate sector hovers around 13 to 20 per cent and even 25 per cent; it forms a major chunk of the overall cost.¨

For his part, Magazine cites the paucity of available quality investment options as one of the biggest challenges in the property sector. ¨There is a fair shortage of investment-grade property with quality specifications and facilities from reputable development firms with a proven track record,¨ he says.

Even the pet project of Prime Minister Narendra Modi, the affordable housing segment, is creating heartburn for developers, especially in the metro cities. The most common objection is that after adding the cost of land, the construction cost, payments to government, and the time spent waiting for permissions and approvals augmenting interest rates, it does not make economic sense for a price reduction.

Possible solutions
To improve the sentiment in the sector, especially residential, Dr Ananta Singh Raghuvanshi, Executive Director -Sales & Marketing, DLF Universal Ltd, advises, ¨Better lending options would be a positive sign and improvement in infrastructure, safety, security and attractive tax sops can further fuel this market.¨

Meanwhile, Ajmera urges the government to recognise the sector as an industry. ¨It would make the banks more receptive and confident in lending to the sector, and the interest rates could go down to as much as 12 per cent,¨ he points out. Bagra is of the opinion that the government has taken a step in the right direction, ¨The highly awaited real-estate regulatory act will instill buyer confidence, but it will take time for its effects to be clear.¨

Future watch
Evidently, there is hope on the horizon. And even the much-lamented oversupply situation may not be as dire as it is perceived. For instance, recent reports have suggested a record inventory pile in Bengaluru. However, as Mahmood says, ¨If under-construction projects are considered as unsold inventory, it would lead to widely exaggerated claims. The situation is not as grim as it is being projected; the current situation is better than 2008. We have done steady sales every month, and a few months back we have had more than average sales.¨ But he does concede that if a macro view is taken, there is oversupply.

¨As the overall economy picks up, it is expected that demand for office space in Tier-II cities will spike,¨ says Limaye. ¨In six to nine months, the residential sector will also pick up. For the retail sector, the Tier-II cities provide the first mover advantage as the market tends to get saturated soon.¨ To this, Doshi adds, ¨In Mumbai, there is high demand for units in the Rs 50-75 lakh range, with another bracket from Rs 1.2 crore to Rs 1.4 crore.¨ And Zainulbhai, affirms, ¨There is a right customer out there for the right apartment; you just need to match them.¨

Indeed, there are lots of interesting developments in the offing for the real-estate sector. Retirement homes with close-knit communities, which are so popular globally, are now present in a few places across India and are likely to see growing acceptance. NRI investments may see a surge with the opening up of FDI, but this would be limited to select cities like Delhi, Mumbai and Bengaluru. The market for plots is governed by availability, so demand and supply are mismatched - this is mostly a seller´s market, which is a exclusive segment. And in terms of policy changes, REITs could very well turn out to be a game-changer for the industry by allowing small players in the market. Another step in the right direction will be the real-estate regulatory bill. Realty may just be back on track - fingers crossed.

Quick Bytes

  • Demand: Compact budgeted housing units.
  • IT: E-commerce players driving demand.
  • Residential: Demand positive in Pune and Chennai; moderate in Bengaluru, Hyderabad and Kolkata; and slowdown in Delhi and Mumbai market.
  • Retail: Around 4.5 million sq ft of space expected to be leased in 2015.
  • Robust economy may spike demand for office space in Tier-II cities.

BUYERS´ CHOICE SURVEY
Analysis of current buying trends and market sentiments in the real-estate sector plays a pivotal role in determining the nature of the project to be delivered and the apt target audience.

With this in mind, CW PROPERTY TODAY conducted a survey in April 2015, as it did the year before. The survey included major segments in the sector: Residential, Commercial, IT and Hospitality. With the buzzword for the year 2014 being affordable housing, the section has been added in the residential segment as part of the survey this year. Also, a new addition has been the security feature, which is gaining importance in the residential segment. Respondents to this year´s survey included realtors from Tier-I and Tier-II cities of the country. Main parameters, such as price, goodwill of the builder, green features, etc, which predominantly lead to property purchases, have been listed and divided into segments. These parameters have been further rated on a scale of 1-5 (1 being most important). Location preferences and proximity to social infrastructure have also been noted.

The following table depicts the current trends and preference in the real-estate market.

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