The resale edge

Tags: Real Estate

Resale apartments, which are flooding the market of late, offer a good alternative to end-users looking for ready-to-occupy residential units

The resale edge
A decision to own a dream home in cities, suburbs or smaller towns has to take into account several factors. The distance to workplace, sch­ools, places of worship, and access to healthcare, retail and entertainment facilities are some of them. The choices are aplenty, in general, except in certain locations where the supply is paltry.

Now, among the choices available, one major question that arises in a homebuyer’s mind is about choosing a better option between booking a resale flat and an under-construction unit.

Booking under-construction flats has an inherent risk. First of all, it takes three to four years to complete, considering the builder sticks to its deadline. In most cases, there is a time overrun, keeping customers in the dock. Indeed, it is a big problem for those are looking to move in at the earliest due to their own commitments. For these kind of end-users looking for ready-to-occupy residential units, resale apartments offer a good alternative option.

Resale apartments are of two types. The first one is where an investor would have parked his money when the project was launched, and is now looking to exit and book profits when it is nearing completion. These unused flats are sold at current market price of the locality. The advantage for a buyer will be that he gets to buy an almost ready-to-occupy flat at current prices.

Another sub-segment within the re-sale apartment category is typically 10-20-year-old used apartments that come up for sale at a certain discount to the current market price. The sellers have their own reasons, varying from moving out of city or country or simply raising capital for personal reasons. For a buyer, he not only gets a ready-to-occupy residential flat at a discounted price, at a location with not many new launch options, but is also free to re-do interiors to suit his taste and then move in.

According to Om Ahuja, CEO – residential services, Jones Lang Lasalle India, the demand for resale apartments generally falls in line with the overall demand trend. A slowdown in primary sales does not necessarily indicate an uptick in demand for properties in the secondary market. In a slowdown scenario, resale flats, which offer the advantage of good location at somewhat lower price points, definitely see more demand than higher-priced units in the same location. However, in central locations of main cities, there is often no price advantage in resales, as prices are largely determined by location.

“There can be two reasons for choosing a resale flat over a flat in a new project. The first is pricing: While developers are generally averse to marking down the price of units in their projects, investors in need of liquidity or owners seeking to relocate, sometimes do so. The second is location: Lack of any suitable new project in a desired central location leaves tapping the secondary market as the only option for buyers,” points out Ahuja.

Kalpana Murthy, associate director, residential – south, Cushman & Wakefield, lists three types of people that basically drive sales of resale flats. The first type are people, looking to buy a new larger flat and would want to dispose off their existing one, which again they would have bought a few years ago based on their then financial capability and the requirement of the family. The second type people owning 10-15-year-old flats and wanting to move out to a new campus that offers better lifestyle facilities and amenities. The third type are those where the owners, nearing their retirement stage, would want to ensure larger space for the grown-up family and look at options to settle down in a city’s peripheral area, which today boasts of a better social infrastructure and easier accessibility than in the past, while at the same time, ensuring that they get the right capital value for their existing flat.

“Thanks to all these factors, resale flats are flooding the market, thereby giving options to those looking to buy one. This, in turn, is creating great opportunity for organised re-construction and maintenance companies as the buyers of used flats would want to re-do the whole interior before moving in,” points out Kalpana Murthy. This has also helped developers offload a lot of their unsold inventory, like in the case of OMR, Chennai’s IT corridor.

According to Ganesh Vasudevan, CEO, Indiaproperty.com, the investor-driven resale flats are adding substantial numbers to the market scenario, thereby creating wider options for buyers. “When a developer launches a large apartment campus project, to be developed in phases, investors move in and book units, either at a pre-launch price or at a launch price, and hold on till the project’s first phase nears completion and are ready for handover. This is when they decide to off-load their holding and book profits. Buyers looking for new flats that are ready to occupy at current market price opt for such an option,” he said.

The availability of re-sale apartments, either old ones or those being offloaded by investors, differs from city to city and location to location. For instance, Chennai is predominantly an end-user market and they constitute 85 per cent of buyers of new flats. Hence, here the availability of resale of new unused flats are limited and what one generally gets to buy are old and used flats. Whereas in Mumbai, investors comprise the majority and end-users are a mere 25–30 per cent. As a result, one gets to buy more unused resale flats. Similar is the case with Delhi/NCR, where presence of investors is predominant.

Cushman’s Kalpana Murthy highlights a phenomenon that has come to make its presence felt in the sale of used flats across cities. Several companies that had invested in flats about 15-20 years ago, either to be used as a company guesthouse or for the use of senior officials, are now offloading the same.

“They are either doing it to exit units that are old, or to give a boost to their income. We are handling mandates of quite a few companies across cities,” Kalpana pointed out, while refraining from naming them due to confidentiality agreements. “This has been increasingly happening over the past two to three years and that is adding to the supply of used flats,” she added.

In case of unused resale flats too, it differs from time to time. “While investors in the south generally look at a time horizon of two to three years to hold on to such assets, people in the north mostly look for just about an year. As a result, properties that are under construction change hands at least two or three times before completion,” says In­diaproperty’s Vasudevan.

In Kolkata, the market for resale apartments is thriving, of late. This is particularly true with properties from the stable of established brands and organised sector players. “New stocks are not coming into the market in sufficient numbers. Be it Rajarhat, south Kolkata or north Kolkata, no new projects having large scale and magnitude has come up in the recent past. As a result, homebuyers have to rely on old stocks or properties up for resale. These are mostly apartments that were booked and sold some three and four years ago, but not used. Therefore, the apartments are actually coming new to the buyers. Some developers and investors who had been holding these stocks, are now releasing them at nearly 25-30 per cent appreciated prices on an average,” said Nilesh Biswas, managing director, Calcutta Skyline, a leading property consulting, research and brokerage firm.

In case of Hyderabad, resale of properties or flats in the city has not really taken off. Nevertheless, there are some properties that are put up for sale mainly because the owners are moving out to other cities or there is a problem with the location, like scarcity of water.

Moreover, there are enough new properties available for prospective homebuyers to consider in the city. New projects are coming up in the periphery as the city is growing. The difference, in value terms, between a new house and a resale property, is blurring now.

(With inputs from Ritwik Mukherjee in Kolkata and B Krishna Mohan in Hyderabad)

govardand@mydigitalfc.com

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