"Wait till January or February," says Pranay Vakil, chairman, Knight Frank India, a realty-consulting firm. A study done by Makaan.com for Outlook Money shows that a majority of the respondents plan to wait another six months before going ahead with the "buy" decision. Prices have started to come down. In select locations, prices have been cooling off since January 2008. To give you an idea: according to a study done by 99acres.com, an online realty portal, in Hebbal, Bangalore, prices are already off 40 per cent between January and September 2008. In Marathalli, also in Bangalore, prices have reduced by almost 30 per cent during the same period.

Price correction is not specific to Bangalore alone. Between January and September, prices have fallen by 31 per cent in Nerul, Navi Mumbai, 25 per cent in Jubilee Hills and 19 per cent in Hyderabad and 15 per cent in Dwarka. So, what has led to cooling of capital values which till end-2007 were on a bull run?

High cost of property. Homebuyers have been postponing purchase decisions since most of them were priced out, especially since 2005. In simple words, they did not find a property within their budget, because whatever supply was coming into the market, especially after 2005, was catering to the high-end segment.

High interest rates. Interest rate on home loans too were high. After hitting a low of around 7.5 per cent in mid-2004, interest rates started to move up. At present, the floating rate of interest hovers between 10-11.75 per cent. High interest rate means you have to pay a higher price for your loan. According to a study done by Edelweiss Securities, when interest rates hit a low, around 39 per cent of an individual’s monthly income used to go towards servicing the EMI. Today, this figure has shot up to around 54 per cent.

Negative sentiment. The sector, which was already battling high property costs and high interest rates, received a blow from negative sentiment and insecurity among prospective homebuyers about their future earnings.

Liquidity crisis. While the above-mentioned reason has forced likely homebuyers to postpone purchases, developers, too, are in a spot of bother. The major problem, for them, is liquidity. Regular sources of funds—banks, IPOs and private equity—have dried up for them. Sales, too, have taken a severe hit since January 2008.

Why Should You Wait
Prices will come down further. January onwards will be the last quarter of the financial year and this will be the last chance for developers to shore up their financials. Since prospective homebuyers have not blinked till now, most experts believe that developers do not have much of a choice in the near future.

Financial institutions too have been putting pressure on developers to cut prices so that sales can be revived. This would ensure some cash flow for the developers and enable them to meet maturing debt obligations. Prices could go down by another 15-25 per cent depending on the location.

Interest rates to soften. Till now only public sector banks had gone ahead and reduced interest rate on home loans. Private sector banks have now begun reducing their rates, with indications of further reductions in the days to come. According to experts, interest rates could go down by 50-75 basis points in the next 2-3 months.

The other reason why you should wait for a while is that the mid-income and low-income housing, which was so far neglected by most developers, will see a lot of action in the days to come. The primary reason for this is the thrust these two sections of housing received in the stimulus package which was announced recently. Also, some leading developers have already announced their entrance into the mid-income and low-income housing space, which had not received as much focus during the boom earlier.

However, this is the time for you to begin your home search aggressively. And when you find a house that is within your budget and fits all your preferences, such as location, size and other conveniences, do not think too much. Go ahead and buy it. Some minor swings in prices should not deter you. After all, you will be using the house to live in, yourself.

toppo@outlookindia.com

When interest rates on home loans hit a low in mid-2004, it was estimated that around 39 per cent of an individual’s monthly in come went to servicing the Emi. Today, this figure is much higher.