Analysis of Mumbai Property Market

 Micro and Macro

(Numerous Micro and Macro factors in the market today have lead to the present day situation in Mumbai in 2013)

The stock market down turn after a continued bull phase seems to have finally impacted the real estate market and it once again confirms the deep relation of the two markets which compliment each other most of the times in thick and thin.

However, in the present day situation there are Macro and Micro factors and it is imperative to understand, relate and then act accordingly to understand what is happening around in the market. Higher Interest Rates, Double Digit Inflation topped up with a bit of a political un-stability on the horizon has also lead to the financial and liquidity crunch and these can be considered as Macro factors for the current phase.

Now, let us go back a few years and look at the entire real estate story, the past 3 years have been the best ever for real estate, this was also possible because the stock markets were booming, there was industrial growth all across and with political stability there was definitely a vision and of course the infrastructure development, launches of lot of projects by a lot of top developers across locations and other factors added to the glory of it. People had disposable incomes because of the stock markets (read: unconventional income) apart from their regular incomes out of the overall booming businesses to invest in real estate and create an asset and the pricing was looking attractive and the outlook was promising to the extent of the fact that people could see their money and investments yielding returns both from capital appreciation/lease rent returns in a short span.

Take the case now, we have the opposite happening and I am sure you are witness to the stock markets state of affairs today. There is a cloud of political un-stability, financial markets are down, people have nearly lost their profits and their principle amounts invested are looking to be at stake now. Owing to all this, there is a little bit of a slowdown in the economy and a lot of small and big fear varied factors have tamed the mind set of people and turned them conservative. The increased burden of EMI which was 7% in Year 2004 – 5 is now become 11% plus and it is a big deterrent to a lot of home buyers as they have to look at their monthly budgets today a little bit more seriously before they commit to the property purchase.

The valuations of property prices which were looking strong have started looking a little bleak because of the fact that they had actually grown too big owing to a rapid fire round of price inflations across and suddenly in all this the un affordability has kicked in. This means, only the people who have money or the need to buy a home will be the buyers in the property market. Each location has reached its peak in terms of property prices and now it seems to a few people that there is definitely a margin to reduce as the locations and properties do not value so much once you look at the ground realities. All these factors coupled together can be termed as Micro Factors as well.

The market as on date is not majorly impacted but at the same time the general feeling which has been witnessed is that people are waiting and watching and may grab a deal which makes sense to them financially. Also, if you look at the future prospects it is become a bit unpredictable and hence the inevitable slow down will be haunting the market for a while. This also means more and more waiting and watching and in turn stagnation may be round the corner.

Monsoons, are generally a slow period, but let us look at the micro picture and ground realities a bit deeply. Mentioned below are a few categories of buyers in the market, with the categorisation of buyers we see that the demand may be existing but it is very different and scattered across various segments and the market should also offer products to sell in the same segment, and only if the parameters of both the buyers and sellers match then things can move else, the slow down will remain eminent. It should also be noted that a lot of people have already bought homes and they are the executives working for MNC’s, Corporates, Banks Companies etc. and a lot of business families are also invested already in a small and big manner. The very fact that buyers are finding the properties unaffordable means that the cycle will slow down and hence the Micro Factors will play a big role in coming months.

Buyer Categories

Overview

Analysis/Deterrents

Actual users (NRI’s and HNI’s)

These 2 Categories are probably the only buyers left out today in the market as they have the money to still be deployed as they have invested a few years back and are yielding lease rent returns etc, and can afford to stay afloat and still on the look out for premium apartments.

(Analysis – Slow and Selective Demand, gets crippled at times when they do not get transparency in the transaction)

Property Investor

The Property investors have disappeared for a while, they do not think it is worth investing to get in at this stage and in any case, there are not many projects left out, which will give them enough Capital Appreciation and good lease rental returns and a lot of them cannot even recycle because they will have to pay Capital Gains on their initial investment etc. So they are sitting quiet as of now, In fact they are the best people to learn from as they have a deep sense of actual experience of the returns which is both on paper and tangible.

((Analysis – Weak Outlook, low returns, shortage of new projects, builders asking for large amounts upfront while the possession is 3 years away)

Re-investment due to Capital Gains

These are forced buyers who are always in the market scouting around for a suitable match for their investments which may either be a distress sale which promises a future capital appreciation and lease rental returns, most investors today look at combination of both these factors.

Analysis – Very Slow and Selective Demand/ Limited availability of Capital Gain bonds

Upgrade Buyer

This category buyer is an evergreen component of the market and is always present in the market year on year as the back to back deal is not very easy to transact and the quest is always on for that dream home

Analysis – Extremely Slow and very selective demand (Extremely cumbersome as it is a double deal and to match all the parameters and synchronise it becomes a bit tough for the non seasoned)

First Home Buyers

Year 2004 through 2007 experienced the maximum activity in this segment and as per an estimate around 40000 families in the Mumbai region itself jumped into owning their first homes with maximum loan components, the first home buyers generally like to book in an under construction and pay the entire price over a period of time)

Analysis – Ongoing demand but in select locations and projects. The prices in most locations are all time high and most people are unable to afford the current day prices and they are watching and looking forward for some kind of respite in the short span.

 

 

Source – Sandeep Sadh CEO Mumbai Property Exchange

How to Sell Your House and Buy Another

How to Sell Your House and Buy Another

Selling a House and buying another one is one of the most common things in any property market across the world. The troubles actually brew here if one doesn’t know the steps to do this right as we cannot expect every one to be pro at it. It is always advisable to take a reputed realtors advise on this and go with the process with an experienced hand.

There are many combinations here:

1. Selling a property in the same location and buying another larger one in the same location. This means you need to put in some more funds – which can be over and above 35 to 40% of the value.
For Example – 1 BHK in Andheri West is for around 1.25 CR, 2 BHK in the range of around 2 CR and 3 BHK can be around 3.00 CR, so you must know what is the approximate value for your home and what is your own contribution if you are looking to buy another one in the same location.

2. Selling a property in one location and buying it in another one
The pricing may again depend if you are upgrading to an expensive location than yours or upgrading to a size of the apartment.

3. If you are up upgrading to another location which is Premium than yours
Then you need to know what are the rates of the particular location, sizes of apartments there and other factors like how much is the difference and can you do that.

4. If you are looking to upgrade your property from for e.g. a 2 BHK to a 3 BHK.
Then again you need to again look if you want to buy a 3 BHK in the other location and what are the prices prevalent there and will your current house sale be able to fund you for the new larger home.

Incidental Charges are around 5 to 10% for buying a home.

5% Stamp Duty Flat
1% Vat – Not incase of Older Properties
3.71% Service Tax – In a construction linked house or an under construction property
30000 – Registration charges for any property

Apart from these if you buying in Re-sale, then Transfer Fees to the society etc come in play. So you need to know all the maths before you leap out and do this.
If you thought, the above is all over, then i would say, you have just begun.

1. You need to align possessions of both properties and have a back up plan in case you need to stay on rent for a few months some where. Often possession issues, drag you to take a wrong decision in buying a home.
2. Be sure and do not get into any grey areas with the buyer and sellers. As each one of you is dependent on a sale or a purchase so be very very clear and do not get frustrated with the end less delays.
3. Make a check list of things to do.
4. Know your taxation, make sure you are not running into short term capital gains when you are selling a property.
5. Please review where are the legal papers, if they are mortgaged, get clarity on the same.
6. Know local market practises, be sure of all things and plan well.

If you plan well, you will help another home owner move on time.

Do let us know if you need any other assistance in doing a double deal.

Sandeep Sadh