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Time to shop smart

Time to shop smart

It's the season to drive a hard bargain in the residential real estate sector as desperate builders offer discounts and freebies to clear their inventories.

It's a cinch that many of you, especially government employees, are waiting for this year's bonus cheque. Given that some of us missed out on it last year because of the slowdown, this year is likely to be extra special.

Or so we hope. Of course, you're not the only one waiting for it.

Your local builder is also betting on a bonus cheque this festival season. Most developers, still weighed down by a significant unsold inventory, are preparing to go all out to make a sale during the coming months.

The period between October and January accounts for approximately 40% of the annual sales of all residential projects in the country. "As buying a house is mostly a one-time decision, customers prefer a shubh muhurat (auspicious time), boosting transactions in October," says Dilip Singh, a Delhi-based property broker.

"Customers are on a buying spree from October to November as servicemen and government employees get festive bonuses and businessmen book profits. People even sell stocks for capital gains to increase spending during this season," he adds. Of course, not all experts are gung-ho about this period.

"If you look at the profile of most potential buyers, they are individuals who will have to take a home loan to fund the purchase, and for them the festival season doesn't matter," says Anshuman Magazine, CMD, CB Richard Ellis, South Asia, a real estate consultancy. However, he does agree that the season has somehow been built into the system, what with the bonus cheques flowing in and an upbeat mood, which results in developers offering various sops to attract buyers.

This year, potential customers have higher disposable incomes and willingness to spend compared with last year. These factors are likely to lead to heightened activity in the residential real estate market. This is evident from sales in other high-value segments. "Though the revival in the housing space has already begun, given the positive outlook and higher disposable incomes that buyers have this year, we definitely see sales going up strongly," says Rohtas Goel, CMD, Omaxe.

This, for the average buyer, implies a season of discounts and freebies. So, this period will be a good time to bargain for the home that you have been waiting for all through last year.

"As is the case with most things one buys in the market today, the MRP has become meaningless in real estate sector as well. It's what the BPLR was for home loans. The rate was mentioned in the loan document, but almost always one got a loan for less than that," says a Mumbaibased builder, who doesn't want to be identified.

Builders are also unlikely to hike prices in a hurry because, according to a recent report by brokerage firm Religare, an increase of 10% in property prices can be absorbed along with a 1% hike in interest rates.

However, any rise in prices beyond this may affect volumes. This means that to get the best deal you will have to rely heavily on your bargaining skills.

The Case for Bargaining

It is a buyer's market right now. Most developers desperately need cash to complete delayed projects and start new ones.

Therefore, they shall be more than willing to sell at a reduced margin. Formal avenues of funding have dried up in the past year. They can't tap the stock market as the timing isn't right for real estate stocks (see Poised to Zoom), banks are reluctant to approve loans after the RBI's diktat on the sector, and private equity players are asking for higher returns.

This leaves only retail buyers. Developers are becoming fidgety as many of them are either left with a huge number of unsold apartments (see graph) or stuck with delayed projects. Retail investors seem the only source of income. For a buyer, this means you can virtually force a builder to offer discounts.

 The Haggler's Guide to a Bargain

The next few months will give buyers plenty of opportunities to drive down property prices. Here are a few things to keep in mind when you negotiate.
  • Make a wish list: Even before you start negotiations, it is important to know the kind of property you are looking for. Prepare a list of your requirements and then start house hunting. This will help you zero in on the right options and give a fair picture of the margin for negotiation.
  • Research prices meticulously: Though there are numerous secondary sources of information, such as Websites and brokers, it is important that you research it personally to ensure a prudent choice. Follow the price trends, gather details of other competitive projects and information on the price of property sold recently in the locality. This will give you a realistic idea about the approximate market value of the property.
  • Smaller builders are more vulnerable: If you are buying from a relatively unknown builder, you can negotiate on the price a bit more. Builders who don't have a brand name are the most pressed and desperate to sell. Haggle hard to get the best bargain.
  • Negotiate as a group: Advantages of group purchasing are not unknown. So, why not team up with colleagues and relatives who are looking to buy property to get a further discount? Group sales are also more lucrative for builders because it reduces their costs of marketing properties separately.
  • Ignore the hardsell: The promoters may tell you many convincing stories - increasing rates, all sold except few flats left - to get you to buy a property immediately, but do not fall for their claims. There is no need to rush into the deal.
  • Compare the options: There is an oversupply and enough options in the market. Compare projects and listen to more than one party about the discounts being offered. Chances are you will get the best deal only after you approach several builders.

Of course, take into consideration that some builders who have managed to sell portions of their inventories have increased their margins. So, they have raised prices with the increasing demand. Since they did not incur any additional construction costs, this gives them a cushion to bring down prices if a buyer negotiates. Meanwhile, if residential demand does not pick up again, developers may have to think beyond concessions.

This is because not many have the same staying power as they did in 2008 and several have to make payments towards restructured loans by the end of the year.

How to Negotiate?

Other than direct discounts, freebies, such as air conditioning, fitted kitchens, free stamp duty and registration charges, will also be available.

Some developers are offering to help the new owners in leasing houses if they book during the festive season. Others will offer frivolous freebies, such as lucky draws and free holiday packages, which have nothing to do with the house, so don't fall for these.

Getting a direct discount on the house is better as it will help bring down your home loan EMI.

Some builders will also launch new projects or re-launch the existing ones with reduced prices, but before you choose, consider the costs that might be added at the time of possession. (see Builders' Baits, May 2010).

Also, make up your mind before going in for a down payment. The 'book now, pay later' schemes are tricky as a part of the deposit is forfeited if you decide against booking the project. (see Refund Reality: The Hard Way Out, April 2010).

Before you go to meet the builder, get an estimate of the loan amount that you are eligible for. This will help you while negotiating.

Also, carry your chequebook when you go to see the builder. This will indicate how serious a buyer you are and he may be more inclined to negotiate. To use a builder trick, negotiate in groups. Lately, many builders have banded together to promote townships where they have their projects.

Builders are willing to offer the best discounts on bulk bookings because it takes away the need to market properties separately. Bulk bookings need not always be in large numbers as builders are willing to give discounts proportionate to the number of buyers that come together. (see Clubbing Key to Unlock Deals, July 2009).

While house hunting, do not forget to check with the brokers in that locality because sometimes they block the best properties in bulk.

Since most have a target to meet, they may give you a discount that the developer's marketing team is willing to concede. The broker may also be able to suggest other options in the same area. Bargaining may seem a lot of effort, but remember that now builders consider negotiations a part of the process and a little haggling can get you a good deal. So, do your groundwork and don't be taken in by the hardsell.