Ready homes find more buyers than under-construction flats

Six months ago, Amish Kapoor turned down an offer from a Noida-based broker for a ready apartment, saying it was priced more than the market.

The 30-year-old, who works as a flight steward with an international airline, said he would rather go for an under-construction flat, which came a tad cheaper. He is now ruing that decision.

Last week, when he went hunting for an apartment in the same area, the ready flat was 35% more expensive, while the under construction apartment, where construction seemed to have slowed down, was on offer for the same price as last time around.

Prodded by his family, he decided to shell out more and buy the ready flat. “At least we can move in right away and save the money we pay as rent,” he says.

Demand for ready homes is growing as homebuyers are becoming even more weary about the viability of projects that are under construction. If the price gap between under construction apartments and ready apartments about six months ago was 20%, it has increased to 35% today.

“It is important to note that the appetite for homes is still high. Only, buyers are unsure about the financial health of developers and not willing to bet on projects that are still to see the light of the day,” says Sanjay Dutt, chief executive officer – business at property advisory firm Jones Lang LaSalle.

In sector 93 on Noida Expressway, for instance, a residential project that was delivered about six months ago and was selling at a price of 6,500 per sq ft is now selling at 7,500 per sq ft.

Another project, which is under construction in the same area, is available at around 4,500 per sq ft. In Mumbai’s Lower Parel area, homes that can be occupied immediately are being sold upwards of 40,000 per sq ft while properties still under construction can be had at 28,000-30,000 per sq ft.

“Delivery uncertainty is pushing prices of ready apartments higher,” says Abhay Khemka of Khemka Investments and Properties in Gurgaon. On Golf Course Road in Gurgaon, a project where construction is visibly slow is selling for 8,000 per sq ft while another where possession will be handed over in the next two months is fetching the developer 11,000 per sq ft.

According to a recent report by research firm PropEquity, residential projects in the top three real estate markets in India are facing massive execution delays – around 45% of all projects that were launched prior to 2008 in these three markets are still under construction.

“Buyers today are putting a bigger emphasis on timely completion of projects. This gap will narrow as construction activity picks up,” says Ajay Chandra, managing director of Unitech, which has projects that different stages of completion in Noida, Gurgaon and other cities. Even in some of their projects in Gurgaon, this gap can be seen starkly.

While there will always be buyers for a new project being launched, the psychology of home buyers in the current market environment is different. “The risk profile of buyers has changed,” says Chandra.

In the last one year or so, the market has seen interest rates being increased 13 times and the economic slowdown deepening with news about a crisis in Europe percolating. There is still uncertainty about salary hikes this year, all of which has made many buyers risk averse.

“There is a general increase in risk perception among buyers, which is pushing them towards more certainty that comes with ready properties,” says a Mumbai-based developer who did not want to be named.

For developers, though, this widening gap is throwing up an incentive to finish their projects on time, as that would mean higher realisable value. “Developers might have to look at higher investments in a project from their end as a lot of the sales would happen at the end,” he says.

“In recent months, we have got buyers who are confused about which one to buy. Eventually, they are willing to stretch their budget a little to settle on the side of certainty,” says Sumit Joshi, director of Noida-based real estate brokerage firm Real Credit Consultancy.