The present downturn has resulted in a boon for end users. Not only have the prices of apartments declined drastically, but today, endusers can also bargain hard with developers to get a better location and amenities. In fact, in order to beat the slowdown, property developers have shown a readiness to engage with customers on their terms.
Earlier, when investors used to constitute the major portion of the customer base, end users could not influence developers to meet their requirements, during the construction of the building. Till six months ago, real estate was attracting huge investment from investors, who bought properties to sell them later for profit. Investors are hardly interested in the quality of construction and other amenities,which are necessary for those who plan to live in those buildings.
But, now, as investors have disappeared from the marketplace, endusers are the main customers. This has forced developers to focus on the need of endusers. Property Developers are now taking feedback from buyers and implementing them in their projects.Endusers can also now start to consider and choose which project and developer they would be most comf o r t a b l e with, based on the pros and cons of each. However, endusers in the present market must ensure the genuineness of a builder before buying from his projects. Most of the developers are over-stretched and are under huge debt. Therefore, the advance money they take might be diverted to pay off the debt they have already taken. This will delay the project.
The global realty consultant Cushman and Wakefield (C&W) says the present downturn will result in the consumer gaining trust, which was lost in the developer community earlier with homes being made for investors. Houses will now be designed keeping endusers’ budget in mind and will also take into account their needs, which is a more sustainable model to be followed in the long run.
Property Developers are also adopting regional strategies to account for local conditions. In Haryana, developers are launching independent floors, especially after the policy change by the state government, where independent floors can be registered. This will lead to reduction in prices with independent floors now available in the range of Rs 20 lakh to Rs 50 lakh, which has seen a strong absorption.
The recent slowdown in the sector has given a push towards affordable and low-cost housing projects – a longignored segment till date. With government becoming proactive in formulating policies to this effect, viz, by reserving certain homes for BPL families, reducing stamp duty and registration costs across various states, reservation of economically weaker section (EWS) homes in townships (generally 10% reservation), etc, it has been a boon for endusers, says C&W.
Year-2009 has seen the rise of affordable housing, where developers are launching or planning to launch various houses in the affordable range in peripheral regions of the Tier I & II cities, and in various parts of Tier III cities.
Many property developers are starting to focus on smaller square footage houses in order to bring down the ticket size of houses so as to bring them under affordable category for endusers. This move will additionally reap the advantage of the differential interest rates for loans under 20 lakh for endusers. The public sector banks are giving loan up to Rs 20 lakh at 9.25% as against 10.25% for more than Rs 20 lakh for 20 years. The change in the interest rate by one percentage point from 10.25% to 9.25% leads to reduction in the EMI by Rs 1,316 from Rs 19,633 to Rs 18,317 on Rs 20 lakh loan for 20 years.
To bring down the cost, developers are also considering developing apartments without any frills such as swimming pools, gym etc and only meet the basic housing need.
However, despite all these good offers, endusers are not buying apartments. As the general expectation is that the sector and economy will witness a revival from the third quarter of 2009, prices will go up in due course. To catch those rising prices, some developers are considering undertaking projects without selling them to endusers at present and mobilising money for construction. In such a scenario, costs of development will be completely borne by the developers and they will start to sell the apartment only once they are very close to completion or only after it is ready for possession. This strategy adoption shows the conscious decision that developers are taking in order to build a brand name. Developers say that return on selling the completed house after two years will be much higher than the interest cost on the investments required to build the condominium.
Property Developers are also currently trying to undertake value engineering in order to reduce costs and thus experimenting with pre-fabricated products, fly ash, concrete/cement etc in order to bring down their construction costs on a per sq ft basis. This also decreases time of construction and gives uniform quality so as to enable the customer to move in at a much earlier date