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In opaque, complicated markets like real estate, its best to stay away from generalisations, says Manish Shah.
Among the trickiest predictions to make is which way the property market will go. Financial markets are so much easier because of all the information available – price earnings ratios, company guidance, interest rate guidance from the central bank. And still, projections often go awry.
With property, with all its opaqueness, I’m surprised people even bother. You have no idea what the real demand is. Isn’t it still the best place to stash black money? We have regulators/ombudsmen to help you with Rs 200 extra charged on your credit card or 2 per cent taken as commission on your mutual funds but no one in particular to appeal to (yet) if your possession delay cost you lakhs in additional interest payments to your bank or in additional rents paid.
Which is why I’m perplexed when sweeping statements are made about the state of the market and what you should or shouldn’t do. Let me illustrate through a few examples:
I hear all around that there’s a real estate slowdown and it is true that transactions have reduced. Mumbai has been hit too. And yet, I sold my apartment in a new complex at a decent return within 2 weeks of listing it on a real estate portal. One off example? Perhaps.
But, if you look deeper, the project had plenty going for it. Ready possession, reasonable rate, great connectivity, a new mall across the road and an upcoming metro station close by.
Could it have appreciated even more? Maybe. Does it sound like this is a tough market? Perhaps not. My limited point here is that it’s such a complicated asset, that skip the generalisations and get down to your specific case – only then, will it make sense.
I hear with amazement, declarations about this being a bad market to buy and there are now indices that talk about particular cities being better to rent in rather than buy while some others have the reverse said about them.
How can a generalisation be made of an entire city? Take two people considering whether to rent or to buy the same apartment – one person with a 3-4 year timeframe, having come to a city to work with the intention of going back to his hometown after that. The other, relocating to the same city with the intention of settling down in it.
If the market is slow and appreciates at low single digits (in percentage terms) it will take over 10 years for the decision to buy to pay off. In the first person’s case, it might not seem worth it at all but in the second, perfectly so, especially if he particularly likes the apartment he bought.
With respect to under-construction properties, most advice is similar – stick to ready property or near completion projects to avoid the cost of delay (not to mention the chance of projects not being completed).
Unfortunately, the reality is that some of the best deals are often available when the project is nowhere near completion. So, the question to ask yourself is, if you, as a buyer are comfortable with the builders reputation of completing projects (judged by past record and current reputation), then is the price that it’s available at right now low enough to allow you to afford a 1-2 year delay? If yes, it might still make sense to buy an under-construction property over a ready one that commands too much of a premium for being… ready!
Unfortunately, the net message here is that in opaque, complicated markets like real estate in India, its best to stay away from generalisations. Evaluating each deal or project on its merit is your best bet.
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Manish Shah is a Co-founder and CEO of Bigdecisions.in