Real Estate

Why ready homes are more popular than under-construction projects

A view of apartment complexes on the Beach Road in Visakhapatnam
Photo:K.R. Deepak

A view of apartment complexes on the Beach Road in Visakhapatnam Photo:K.R. Deepak   | Photo Credit: K_R_DEEPAK

Ready-to-move-in homes are in, while under-construction homes have fewer takers, says Anuj Puri

In the last 3-4 years, an important trend has emerged in real estate. Ready-to-move-in homes are in and under-construction homes are ... well, not so in.

Also, properties in the latter segment have been getting a lot of bad press. While not every developer lacks execution capabilities, the ones that do have burdened the market with heavily delayed or altogether stuck projects.

Unfortunately, this has caused unfinished projects, as an entire market segment, to get the ‘unreliable’ tag. Unlike in earlier years when under-construction homes were favoured for their more attractive price tags, buyers have become extremely risk-averse.

Also, ready-to-move homes do not attract GST. Charged at 5% of the overall property cost without Input Tax Credit (ITC) benefit on under-construction homes, this added cost of acquisitions has no redeeming features for India’s cost-sensitive middle class.

Consumer survey

Anarock’s Consumer Sentiment Survey for H1 2019 revealed that as much as 36% of the polled prospective buyers prefer ready-to-move-in properties.

Another 24% would only consider homes which they can move into in six months or less.

It gets even more interesting when we consider the survey’s city-wise data for ready properties:

- In NCR, at least 56% of prospective buyers prefer ready-to-move properties (this region enjoys understandably low levels of customer confidence because of its massive burden of unfinished projects)

- In Bengaluru and Hyderabad, at least 44% property seekers prefer ready homes, followed by MMR with 34% and Chennai with 33%

- Pune accounts for 28% (interestingly, 38% property seekers in Pune will buy homes that will be ready within a year — the highest in this waiting time bandwidth among the top seven cities), and

- Kolkata with 20%

Number crunching

The attractive price difference that under-construction homes offered over ready-to-move options has reduced significantly. Without lower prices, under-construction properties lose the only real appeal they had. All considered, the rationale behind the preference for ready-to-move-in homes is hard to argue with.

In India, there are hard numbers to justify this preference. As per data, nearly 5.76 lakh homes launched in or before 2013 — worth a staggering ₹4,64,300 crore — are stuck in different stages of non-completion in the top seven cities alone.

Five years is a reasonable time-frame to use as a benchmark as this is the longest it should take to complete a normal housing project. While other countries do not have such a market malaise, the preference for ready apartments is also a global trend visible in major markets such as the US, UK and many parts of Asia.

Due to advantages such as reduced risk, better access to mortgage and reduced complexity of moving in, ready homes are popular in London, New York, Dubai and most other global cities.

Cutting to the chase, buyers want finished products, not products under development. They also want affordable homes, and not just in India, but abroad. Ready affordable housing is trending even in developed markets.

In New York City, for instance, a large section of the ready housing supply falls in this category. In Dubai, the demand for ready apartments endures even in an otherwise slow market.

The preference for ready homes is not restricted to just one budget segment — it is spread across all price categories, including luxury housing.

Eyes on luxury

In the past, the demand for under-construction homes was largely driven by investors with an unwavering ‘buy-low-sell-high’ outlook. Projects were getting completed, albeit with some delays, but investors were willing to wait and often bought unfinished inventory in bulk.

Today, the demand for Indian housing is predominantly driven by end-users — actual buyers who intend to live in the homes they purchase, not sell them or rent them out.

This is also true in the case of luxury and ultra-luxury housing. Very recently, a realty major announced that it had sold 376 ready luxury apartments in a project in Gurugram — almost 75% of the overall inventory available in the project — on the very first day of its launch.

Such a feat presupposes the three important strengths — execution capability, holding capacity (not needing to monetise projects immediately) and financial clout (the ability to finance projects to completion without relying on advance sales).

Most smaller developers relied on the sale of incomplete or even merely announced projects to raise capital to finish them.

End points

We are witnessing an important facet of the consolidation happening in Indian real estate, wherein established players, who can actually complete their projects before marketing, have a distinct advantage.

Unsold inventory can and does reduce once it gets completed as long as it is in the right locations, is of acceptable construction quality and offers the right amenities.

As per research, the end of Q3 2019 saw 6.56 lakh units lying unsold across the top seven cities, of which nearly 12% — or about 81,300 units — are ready-to-move-in.

Going by the current trends, it is fairly certain which part of this inventory will ‘move’ first.

The writer is Chairman, Anarock Property Consultants

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Printable version | Jun 2, 2020 3:14:33 PM |

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