Flat prices stay high
The harsh reality is that in the complex business of real estate in India, developers, investors and speculators form a cosy triangle in which the end-use buyer is still on a weak wicket, despite a downturn of at least three years.india Updated: Jun 27, 2013 02:13 IST
Arun Singh, 38, has been looking to buy a home for the last one year. The Gurgaon-based software engineer hoped to get a good deal after reading about that a large number of apartments were lying unsold across the National Capital Region (NCR) and Mumbai, the two main real estate markets of India.
He expected the price to fall, or at least stay stable. But he discovered to his dismay that in fact, he would need to pay 10% more, even for a flat still under construction.
The harsh reality is that in the complex business of real estate in India, developers, investors and speculators form a cosy triangle in which the end-use buyer is still on a weak wicket, despite a downturn of at least three years in the industry.
While glitzy advertisements promise something that looks like the moon on a discount, the fine print conceals high prices.
In the name of "subvention" schemes that involve attractive tags like "no EMI till possession" -- in effect a high price is blackloaded for the buyer.
On the surface a subvention scheme appears to be a win-win bet for all - the developers, banks and the property buyers. Here is how this appears to work.
The developer in order to drive through sales and to instill confidence among the property buyer, announces a subvention scheme under which the builder agrees to pay the customer’s home loan EMI (equated monthly instalment) till the time of an apartment’s possession (24 or 36 months, say).
So the buyer rests assured that since the developer is paying the EMI during the construction period it is actually a discount on the property.
A detailed analysis reveals that in the garb of such home loan subvention schemes the developer keeps prices high.
“This is just a marketing gimmick to try to attract the big ticket investors and speculators. Property buying has been made equivalent to buying a financial product,” said Sanjay Sharma, managing director of Gurgaon-based Qubrex a real estate consultancy and brokerage firm.
Sharma explained that due to the complex nature of such schemes the end-user has almost exited from the under construction property market and the market is thriving only on the speculators.
What this means that those who have financial staying power are sitting on purchases -akin to hoarding - while end-users wait for the bargains.
Developers of all hues have such subvention schemes to lure the investors into buying under construction properties.
To make matters worse, some developers default on the handover date for an apartment. The property buyers end up paying more to the banks without being able to stay in the apartment they bought or rent it out.