Want a better bargain from your developer? Santhosh Kumar tells you how
The current slowdown in the Indian economy has impacted several sectors, including real estate. Apartment sales volumes have plummeted and inventories have piled up, creating an ideal environment for buyers to negotiate with developers. However, successful negotiations need a firm foundation of strategy.
1 KNOWLEDGE Awareness of the current market situation is vital. The biggest indicator that one should be informed about is inventory levels, which play an important role in the dynamics of bargaining power across various cities. However, one must also understand how prices have moved in the recent past in order to keep flamboyant expectations in check. Keep an eye on inventory levels. As per our proprietary REIS database, developers in Mumbai are holding on to inventory levels of close to 48 months.
That is quite significant, considering that a comfortable level of inventory is around 12-15 months. Other Tier 1 cities such as Delhi (21 months), Bangalore (25 months), Chennai and Kolkata (17 months) are in a relatively more comfortable state compared to Mumbai, although there are signs of pressure to sell in these cities as well. Second, keep an eye on the price graph. Property prices have not risen much versus inflation over the last 19 quarters (from 3Q 2008 until 2Q 2013) across major metros in India. In Mumbai, residential apartment prices have risen at a modest compounded annual growth rate of 4.3 per cent in this period. If we compare this with the wholesale price inflation rate, which averaged over 7.0 per cent over the same period, we realise that prices have actually fallen marginally. The situation in other metros such as NCR-Delhi (1.4%), Chennai (3.8%), and Bangalore (5.5%) is not too different. Therefore, it's important to keep expectations rational.
2 CASH DISCOUNTS Learn to convert meaningless offers into significant cash discounts. To attract buyers, builders are resorting to offers and freebies. Some recent examples of such offers include 10g gold coins, waived floor-rise charges, free stamp duty registration, free memberships to club houses and amenities, free modular kitchens, international holidays, free cars, etc. Negotiators who do not see value in such offers can and should negotiate for better prices instead.
3 ENLIST EXPERT HELP Typically, buyers seek to avoid brokers because they wish to avoid brokerage fees. However, not all buyers are in a position to strike a good deal with builders or landlords. They could risk paying more than required, or winding up with an apartment in a bad locality and by a less-than-reputable builder. Buyers should explore all channels of transacting — brokers, online information as well as direct contact with owners.
This will help evaluate one’s on-ground ability to strike a good deal. It may emerge that a good broker is actually a better bet.
4 EXPRESS INTEREST This is probably the most misunderstood aspect of a negotiation. It is a myth that expressing their interest in purchasing a flat puts one at a disadvantage at the negotiation table.
In fact, buyers should clearly express their desire to purchase so that developer can seriously consider offering them a better deal. Builders treat genuine buyers very differently from idle information seekers. Buyers should approach the negotiation table with their chequebooks, ready to pay a token amount and every assurance of serious interest if a good deal is offered.
5 DON’T TIME THE MARKET There have been far too many victims of this syndrome in the past, both in the financial markets and in real estate. Builders are currently willing to offer good deals to serious buyers. Armed with sufficient knowledge about the current market situation and honed negotiating skills, buyers can leverage the current opportunities to purchase a house at good prices.
While prices will correct to some extent in certain cities, no one can precisely predict the bottom.
The writer is CEO-Operations, Jones Lang LaSalle