Watch out for the real deal

The real estate sector saw the balance of power shifting from sellers to buyers in 2009. Developers were forced to cut prices of new projects by up to 50% to bring in the elusive buyer. The shift prompted consumers to fight back for their rights. In Chennai, a group of customers forced DLF to extend them the same discounts that were being offered to new buyers. This prompted the formation of similar groups to take on builders in other cities as well.

As potential buyers decided to wait and watch before taking a decision, the buzzword in the industry changed from ‘luxury’ to ‘affordable’ housing. Most developers launched projects in the sub-Rs 40 lakh category in large cities, and in the Rs 15-25 lakh range in tier II towns. Discounts and freebies became common. These ranged from ‘no EMI till possession’ schemes to ‘buy one, get one free’ offers. One builder even promised a free car with a flat. However, lower ticket prices have meant smaller apartments. An average twobedroom apartment in Delhi shrunk from 1,000 sq ft to 650 sq ft in 2009.

Home owners who wanted to sell learnt an important lesson in 2009. Property prices are not immune to declines, and while leverage may not be a bad word, betting on real estate for the short term on borrowed funds can be a perfect recipe for disaster. Speculators learnt that real estate is not a short-term investment and flipping properties is not always profitable.

For buyers, however, the slowdown meant they could negotiate aggressively. On the other hand, as developers faced credit crunch, project delays became commonplace. Even established companies could not guarantee timely delivery, underlining the need to assess the antecedents of the promoter before buying.

Also, 2009 showed that the resale property market can sometimes offer better deals than new projects. Buyers managed to bag good bargains from distressed sellers.

Signs of revival in the real estate market have prompted developers to raise prices. Buyers must also watch out for the new tricks they are using. The difference between super area and carpet area has widened. Even common facilities may not be as promised. Some developers offer a single club house or a pool for up to 2,000 units or levy very high maintenance charges for such facilities.

• Betting on real estate for the short term on borrowed funds could be a perfect recipe for disaster.
• Don’t look only at new launches; the resale market may offer a better deal in areas where investors are selling cheap to cut losses.
• Evaluate what you’re getting versus what was promised; the difference between the quoted super area and the actual carpet area has widened.
• Lower ticket prices come at a price — projects are more affordable, but apartment sizes are shrinking.
• The balance of power has shifted from developers to home buyers, so feel free to negotiate aggressively.