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NCR market at takeoff point

By Amit - December 6, 2014

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Written by Sandeep Singh

Updated: December 6, 2014 12:21:47 am

Within a fortnight of the DDA draw, the government has notified the relaxation of the norms in foreign direct investment in construction.

Post the DDA housing scheme results, fence sitters who did not make it are scouting for a home. Signals of an interest rate cut
going forward and relaxation in FDI norms are set to provide a boost to the NCR market, experts feel

The residential real estate market in the National Capital Region is slowly but steadily coming back to normalcy after the results of the draw for Delhi Development Authority’s flagship housing scheme was announced in November. While over 10 lakh applications were submitted for 25,040 flats across various categories in the city, market players say that a large number of unsuccessful applicants who were fence sitters in anticipation of success at the draw, have now started prospecting for a home. As a result, there has been a noticeable rise in the number of queries over the past couple of weeks.

Within a fortnight of the DDA draw, the government has notified the relaxation of the norms in foreign direct investment in construction where the minimum holding period has been done away with and the investment and built-up area threshold have been significantly reduced.

In addition, the possibility of Reserve Bank of India announcing an interest rate cut in the first quarter of 2015 in its monetary policy review is likely to give a renewed boost to the housing market in the months to come. But the mood is not the same across all micro-markets in the NCR. While Noida may benefit from entry of new buyers, Gurgaon may continue to suffer as prospective buyers are now getting attracted to the housing projects that are being launched under the affordable housing policy of the Haryana government.

Cause of the downturn

Industry players say that several reasons led to a decline in the real estate market in the NCR. While a dip in demand resulted in an oversupply situation and a rise in inventory, the DDA housing scheme took a large number of prospective home buyers out of the market as they were awaiting the results of the draw before entering the market for their home purchase.

“Since the DDA draw has been announced, we have seen a significant rise in the number of flat bookings. Also, the number of queries have witnessed a jump,” said Honey Katiyal, MD, Investors Clinic. There are others who agree and say that while investors may not be knocking their doors, end users are getting into the market.

“While it is not a market for investors to get into, end users who are looking to buy a house have a good opportunity as the prices have corrected and many applicants of DDA housing scheme are now entering the market for their home purchase,” said Sandeep Singh Katiyar, CEO of Century 21 Real Estate India which is a leading residential real estate franchise sales organisation.

While the DDA scheme had its impact, market players feel that a hike in circle rate and increase in the Floor Area Ratio (FAR) in Noida from 2.75 to 3.5 also dampened the market. While the hike in circle rate affected the secondary market sale as the black money component is getting wiped out, the decision to raise the FAR to 3.5 in the year 2013, resulted into a 25 per cent jump in the inventory which dampened the market.

The hike in FAR limit increased the developers ability to construct more flats on the same parcel of land thereby reducing his cost and increasing the number of housing units to be sold. While this led to an overall rise in supply, it also resulted into price stagnation.

Optimism returns

The relaxation of FDI norms in construction will result into fund flow for the cash-strapped sector, say industry experts. Also RBI’s indication of a rate cut following a stable inflation regime has come as a breather for the interest rate sensitive sector. A rate cut will translate into cheaper home loans and is expected to prop the demand for residential houses and will result into faster absorption of the piled up inventory.

Though it has been a short period since the DDA auction results were announced, industry players have a sense of relief that home buyers are coming back to the market now and its largely the end users who are coming in.

While homebuyers have an opportunity to go for a good deal into a market where the prices have witnessed some correction, the attractive financing schemes are another factor that have helped the market improve.

In the recent past developers have been offering houses under the 10-80-10 scheme where they have to pay 10 per cent at the time of booking, 80 per cent bank finance and remaining 10 per cent at the time of possession.

“Under the scheme, the customer is not required to pay any EMI till the time of possession which has been the major concern for home buyers as a delay in delivery by the developer used to put pressure on the homebuyer. In this case the pressure is not there on homebuyers to service the EMI till the time he gets the possession,” said Katiyal.

Also with limited new launches over the last one year there is an expectation that the supply will remain limited which will further improve the market overall. Considering that home buyers are getting the opportunity to buy their house at a discount and there are attractive financing schemes being made available, it may be a good time to go for that home.

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