Should you buy property now?

If you can, wait. Prices aren’t likely to run away soon

Are property prices really falling? One really does not know. Are property prices getting out of reach of individuals in most metros? The answer would be a profound ‘yes’ from most people. Just a decade back, someone earning Rs 10 lakh could easily purchase a property of Rs 50 lakh.

Today, those numbers have changed drastically. For one, there are very few or no properties within the price of Rs 50 lakh in Mumbai or Delhi. On the other hand, while salaries have either stagnated or increased marginally in the past three-four years, property prices have risen.

To buy a property in any of the metros, one needs to fork out close to Rs 1 crore at least, and that too, in far-flung areas. In other words, for someone with Rs 10 lakh salary, the salary-to-property ratio is a good 8-10 times.

Add to that, the Reserve Bank of India’s strictures, including capping of loan-to-value at 80 per cent and non-inclusion of registration and stamp duty just makes things tighter.

But, as Anuj Puri, chairman and country head (India), Jones Lang Lasalle, says, “Many builders in the metros have brought down prices by 10-15 per cent to increase sales. I doubt whether there will be a sharper fall.” What is comforting, though, is that prices are not expected to rise substantially at least in the next six months.

Sales, on the other hand, have been slow. A recent Knight Frank report says property sales were down three per cent year-on-year (y-o-y) in 2012. But it’s better than the 35 per cent (y-o-y) drop observed in 2011. So, here is the situation. Property prices are down but it’s unlikely that there will be a free-fall, if one goes by property experts. On the other hand, salaries are stagnating and may continue to do so for some more time. For a prospective buyer, the decision is a tricky one.

Waiting for six months may or may not help because salaries are unlikely to go up sharply. Similarly, going by RBI’s estimates the measure of inflation in March – wholesale price index – will be at around 6.8 per cent. The real inflation – consumer price index – could be much more. In other words, your monthly expense on the same basket of goods will only increase, thereby reducing your ability to save.

Puri feels it could be a good time to scout for properties. If you are getting a good deal, it could be worth the financial strain. Or, take a longer tenure loan – say, 20-25 years. You could always prepay when finances are better.

Yes, if you expect that your financial situation will improve in the next six months to a year, wait, given that property prices are unlikely to run away in the near future. The trick lies in getting a great deal at an affordable price. If you are really lucky, it may happen.