Rising delivery defaults push demand for ready-to-move homes

By Vinod Behl,

Amid rising property prices, high loan rates and rising delivery defaults, home buyers are increasingly opting for ready-to-move properties to ensure safety of their investment.

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Though most of these delays are due to adverse market conditions resulting in slowdown in sales, in some cases these are deliberate by cash-strapped developers. The impact of these delays is clearly visible as there was a huge, 44-percent gap between committed and actual supplies in the past five months of this calendar year.

Large-scale delivery defaults have shaken the faith of home buyers. Despite assurances, customers are not convinced, resulting in slow off-take of homes. This gets reflected in rising inventory of unsold homes that has gone up by almost 5 percent in the top seven cities in the January-March quarter of 2014.

As the things stand today, it will take the developers close to two and a half years to dispose of the housing stock at the current rate of absorption.

Today, the buyer wants to play safe and secures his investment even at the cost of paying a hefty premium associated with ready-to-move properties. It is precisely because of this that there are few takers for newly-launched projects despite their high appreciation potential, while there is hardly any market for pre- launch offers.

That ready-to-move-in properties are increasingly becoming the preferred choice of home buyers is clearly evident from the significant increase in the number of inquiries by potential home buyers and rise in listings on leading property websites. Several developers have reported about 30 percent more sale of their ready-to-occupy homes compared to sale of homes under construction.

For property buyers, safety of investment weighs heavily on their minds, but for cash- strapped developers, ready-to-move-in homes are proving to be a boon in terms of improving their cash flows.

The growing popularity of ready-to-move-in homes can also be attributed to a number of advantages they have. Unlike the homes under construction, buyers are not unsure about the quality of construction. Also the customers get over the problems of builders duping them by not providing the promised amenities.

Also, there is no price escalation on account of rising cost for the developer, as also due to an increase in the super area during construction. Buyers are saved from facing ambiguity about super area and carpet area and they know precisely what they get and what they pay. But in properties under construction, developers increase the number of floors, change the layout plan, raise super area or reduce the green area.

The higher price paid for ready-to-move-in or close-to-possession projects can also well be offset by other benefits like various tax advantages.

The bottom line is that for your immediate need, it makes sense to go for ready-to-move-in homes and these are best for end-users who are already burdened with home rent. But if one is looking for higher returns with an appetite for risk, properties under construction continue to be the best bet as it provides higher return on investment.

(Vinod Behl is editor of Realty Plus, a leading real estate monthly. The views expressed are personal. He can be reached at [email protected])