The real estate markets entered the bull phase in 2003 and property prices doubled in two to three years in most locations. In fact, it was the best phase in terms of returns from realty investments, both rental and price appreciation. The investors who could afford to put in some money entered the residential property market looking at short- to medium-term returns. “Residential property was the preferred choice for most investors because it’s the most understood and was also the safest segment if one was not too aggressive about returns,” says Anuj Puri of Jones Lang LaSalle Meghraj (JLLM).
Some invested in pre-launch offers, paying only the down payment and hoping to get out in twothree years, while others took home loans to buy a second property. But with the overall correction in the real estate market, especially in the past year, they were left with no option but to hold on to their investments. “Most of the people who knew my property was up for sale were brokers looking to take advantage of the situation. The price they quoted was less than what I had put in,” says Prashant Joshi, who had invested in a two-bedroom apartment in Thane.
Today, the situation is changing. Joshi has not only sold his property but also managed a small profit. “Two-bedroom apartments are suddenly in demand in Thane. I sold my property at a 15% premium, which looked too optimistic till even six months ago,” he says.
Things are looking up for investors in other suburbs as well. As buyers feel secure about buying property, it translates into an exit opportunity for investors. The time is particularly ripe because though buyers are coming back to the market, it is the uncertainty about the delivery of a project as per schedule that is prompting many to take a second look. “One is more comfortable about buying what he can see on the ground—either completed or at least taking shape—given the delay in delivery of most projects today,” says Puri. However, as an investor, if you are planning to wait for prices to go up again, keep in mind that this time the recovery is likely to be much slower than the price rise two to three years ago. This also depends on the location to a large extent.
While an individual seller (compared to a builder) suffers obvious drawbacks in getting ready buyers, there are some advantages that are specific to the current real estate scenario. For instance, if you had invested in a project two to three years ago, it would either have ended or would be near completion. This takes care of the issue of ‘timely delivery’ while buying property in a new project. If you sell directly to a customer or even accounting for a brokerage commission, the final price would be attractive to a buyer, depending, of course, on how realistic you are in your sale price.
The decision to sell, however, cannot depend on the current market conditions alone. Your objective is equally important. So, first decide whether the property needs to be sold urgently, because though there may not be a steep rise in prices, most experts believe there will be some appreciation in the medium term. If economic drivers such as malls, IT projects or infrastructure are planned in the area, the value is bound to appreciate. However, holding on to the property is advisable only if it is financially feasible.
The next step is to decide how long you can hold the property: can you wait for the right price or will it be a distress sale? Similarly, if you are planning to sell to upgrade to a better-equipped home, your decision should be based on the new property that you plan to buy.
Another important factor is the status of the project. Is it under construction, ready to move in, an old property or land? So if it is a project nearing completion, you will find ready buyers provided the location is good. Also, you have the advantage of getting to know the prevailing market value for your project with the brokers because the resale market is usually active long after a project has been sold out. Even if the project is under construction, you should be able to get the current market price if the builder is still selling it. Pricing at a slight discount can easily get buyers because if you book early, your project is likely to be completed faster. In case of plots or commercial investments, you may have to wait till investors return to the market in a big way.
If you have decided to sell...
Buyer’s profile: It’s advisable to seal the deal only after making sure the buyer has arranged the finances or has had the home loan sanctioned. “Today, getting a home loan sanctioned is not easy. You wouldn’t want to be stuck with a buyer struggling to arrange for the amount after making part payment,” says real estate consultant Hitesh Sahni. Also, try to get a demand draft instead of a cheque to eliminate the risk of default.
Cash component: Most brokers ask for a certain amount of cash as it gives them the leeway to negotiate with the buyer for commissions.
Paperwork: This is equally important for buyers and sellers. For instance, a buyer may insist on a separate deed of indemnity. This allows him to recover from the seller any loss or liability incurred in case of defects in the seller’s title to the property or breach or misrepresentation. If you agree to give an indemnity bond, negotiate and limit the extent of indemnity in terms of amount and time. An option is to mention that the property is being sold on an ‘as is where is’ basis and that the seller should not be held responsible if the property does not meet the buyer’s requirements in the conveyance deed. Similarly, in case of a housing society, a seller may need to have a no-objection certificate from the society. Even after the sale process, the seller should get the buyer to ensure that the change of name has been notified to the housing society and other bodies like the municipal corporation.
Reinvest before the taxman gets to you: To avoid paying long-term capital gains tax, it’s imperative to reinvest in another residential property within the specified period; new property has to be bought one year before or within two years of the date of sale. If you are planning to construct a house, it should be done within three years of the date of transfer. Alternatively, the amount, not exceeding Rs 50 lakh, can be invested in NHAI and REC bonds within six months.
Home improvement: These should be undertaken cautiously. Neutral decorations like painting can add to the look and remodelling bathrooms can add to the value, but major overhauling should be done keeping in mind similar properties in the area. If the house has been lived in, make sure the fittings, floors, etc, are in good condition before you sell; ready-to-move-in properties sell faster than unfinished projects.
Be realistic while valuing realty: Remember that buyers have returned to the market lured by developers’ discounts. So if your property is seen to be overpriced, finding buyers will be difficult. While a comparison with similar properties in the area and your own investment will give you an idea of the price to quote, look at how institutions arrive at a valuation. A real estate evaluation tries to determine a ‘fair market’ by using one or all of the following parameters:
Cost approach: This method determines the replacement cost of land and built-up structure at present rates, minus depreciation.
Income approach: It determines the property’s income potential.
Price method: It compares the selling price of recently sold similar properties in the neighbourhood.
Experts stress that an important factor while selling property is patience. “A seller should be patient in his search for the right buyer. Given the liquidity crunch, people are not walking around with ready money. They will evaluate every aspect before putting in their hardearned money,” says Sahni.