Indian Stock Market News and Views.

Is it the right time to buy a property? Part 2

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In this second part of the series we will list out the factors you should consider before buying a property or in other words the factors that will help you decide if it is the right time to buy a property.

For self-use

Your decision to buy a property will always depend on what type of buyer or investor you are. If it is for self-use then timing of the purchase doesn’t matter much. Why? Historical long term trends points out that the value of a property will always be on an upward scale for the next 20 or 30 years! So the real question is “if one should buy now when the prices are increasing or wait for the prices to come down?”

 Is it the right time to buy a property?  Part 2

Self-use: Factors to find out price movement

To find out if the current prices are fair consider at least the following four important factors:  (1) locality of the property (2) the demand and supply of the area (3) the track record of the developers and (4) your negotiating ability.

The Locality factor

Every locality has huge potential for growth. The proposals to build infrastructure projects and factors like accessibility to highways, business places, markets and livability status of the locality shoot up the prices of the property there. However, not every development can impact the real estate prices in the locality, the metro rail line for instance as these factors could have already impacted the price rise. An ideal example is that today a property in South Mumbai is sold at a higher price than a property in the suburbs despite many such development projects.

Understanding the area

It is important to see an area in terms of basic infrastructure facilities around your property to calculate its current price. That said it is equally important to understand that any existing and upcoming infrastructure development proposals in the area could result in only a gradual price rise and not any immediate price escalation. You could also contact real estate brokers about the upcoming buildings in your area and arrive at a short term price movement.

The demand and supply movement of real estate in an area can be ascertained by the freebies offered by the developers. Free stamp duty and registration or other such freebies when buying a flat in an area could be an indicative of higher supply.

Builder and the Building

Check the track record of the builder including his completed, pending and cancelled projects if any (and the reasons for it). His financial strength, ability to hand over projects on time and his payment terms are equally important. A full cheque payment demand from the builder will ensure that he is fair and transparent in selling the property at a fair price if not the best price. This will also ensure on most occasions that you do not end up paying more than what you wanted.

Negotiation is the key

Finally it is your negotiating ability that will get your dream property. It is important in a seller’s market that your negotiating ability is ably supported by crucial knowledge like a keen understanding of the area and its infrastructure.

Investors: Factors to consider

If you are an investor then you must go beyond the above said broader factors and dive deep into understanding the intricacies of the market.

To begin with, the returns on property investment can best be ascertained only in the long run and only if the property has its own intrinsic value to it. Only then, the property can buffer the shock of a lull period, recoup faster and give you profits. So give at least 3 to 5 years for better capital appreciation.

The rebound in real estate prices might also work negative for your future prospects. Too much of investment flows and the drive in speculation due to presales can scare away the genuine buyer. This could play havoc on resale of properties, which could eat into yields.

Another point of concern is that any intervention by the RBI like hiking the interest rates could put the brakes on the buying momentum.

The dynamics of the market has always been that rising prices could mean slowing demand. Over the last one year or so there has been a sharp rise in prices which could mean that it will settle down during which there will be stagnation. Further when the commercial property market rebounds, which may or may not happen immediately as there is more supply than demand, there will be further appreciation of residential property market as it is believed that every 1 square foot of commercial property creates an addition demand in the residential property to the tune of 6 square feet.

So the timing of buying a property for self use or for investment purposes should only be made after considering the above factors.