After a long time, real estate market has turned into a buyers’ market. This has lent a great opportunity to end users to select a suitable home at affordable prices. And, taking cue from the market, developers have been forced to respond to buyers’ requirements.

The buzzword in the market today is ‘affordable housing-quality homes at affordable prices. This seems the only way the sector can fight the slowdown in economy. Anshuman Magazine, MD of C B Richard Ellis (South Asia), says that while where is a huge unmet demand in the affordable segment of housing sector, the premium segment is witnessing a condition of oversupply.

The unreasonably high focus on the premium segment of housing sector by a cross-section of developers affected the construction industry – blocking capital of developers saddled with large premium projects. On the other hand, there is a huge demand for affordable housing in the price range of Rs 18 lakh to Rs 30 lakh.

Because of the slowdown in economy, prices in real estate have already fallen by around 15% in the ongoing projects. At the same time, since the slow down has helped bring down commodities prices as well, the cost of construction has also come down in the last one year. The prices of cement and steel, which constitute a major chunk of construction costs, have declined substantially. While steel prices have fallen by over 40%, cement prices have come down by around 20%.

Because of stiff competition, developers have passed on the benefit of fall in cost of construction to end users. Now, the developers have launched projects, from Rs 1,800 per sq ft in Ghaziabad on National Highway 58 to Rs 2,100 per sq ft on NH-24 in Crossing Republic, and RS 2,400 per sq ft in Indirapuram in Ghaziabad, Gurgaon and Faridabad. Even in the premium areas in the National Capital Region of Noida and Gurgaon, developers are launching new projects at around Rs 2,700 per sq ft. this is only one part of the story. As authorities in Noida and Ghaziabad increased the number of units that can be constructed on a given area, developers have reduced the size of apartments. This has helped reduce the cost of apartments in these areas, in a big way.

Developers have reduced apartments’ size by up to 30% to make them affordable for the middle class. The size of an average two-bed room apartment has come down from 1,500 sq ft to around 1,200 sq ft. in some cases, developers are constructing two-bedroom apartment of 1,000 sq ft. similarly, the size of a typical three-bedroom house has come down from 2,000 sq ft to around 1,500 sq ft.

This has brought a sea change in prices of apartments in the Delhi- NCR. For instance, earlier, an apartment in Noida was being sold at Rs 3,600 per sq ft to Rs 4,200 per sq ft, in the guise of a premium product. At the same time, the size of a three-bedroom apartment used to be around 2,000 sq ft. that means, the cost of a three-bed room apartment in Noida used to vary between Rs 72 lakh to Rs one crore.

But now, with the change in market conditions, a new apartment in the same zone is being offered at around Rs 2,700 per sq ft. besides, as the size of the apartment has been reduced to around 1,500 per sq ft, the average price of a three-bedroom apartment has come down to around Rs 43 lakh. Clearly, the price of the “sweet home” has come down by almost 50% in Noida. The same is true in other parts of the town also. However, new apartments will not have the same specifications as those that developers offered in the earlier projects. The new projects may not have Italian marble and Jacuzzi, for instance, but they give value for money. They will have all the other ingredients like 24-hour power back up, top-class security system, swimming pools and other amenities.

Apart from this, as interest rates have already fallen by around 1.5 percentage points in the last four months, the effective EMI for an apartment has come down drastically. At around 12% interest rates, the EMI for an Rs 75-lakh loan for 20 years on a three-bedroom apartment was Rs 82,521, two months ago. Now, a three-bedroom apartment is available for Rs 43 lakh. The EMI for the entire amount for a 20-year loan at 10.5% is Rs 42,930.

This has boosted up the affordability bar of end users. As interest rates are likely to fall further, the EMIs will come down even sharply, in future. It is expected that by March 2009, inflation will lower below 3%. This will lead to a further dip in interest rates. With another ripple effect on your EMIs. One can benefit from lowering of interest rates, if one were to borrow at floating rate of interest. As interest rates come down, so will the effective rate on your loan. This will result into a lowering of your EMI.

Does that mean one should wait for interest rates to further fall to buy a house -- not really? With the fall in interest rates to an expected 7% level by the second quarter of 2009, demand for houses will also be boosted, which will reduce your bargaining capacity. Therefore, this is the right time to negotiate for that ‘dream home

Courtesy TOI dtd 31-01-09