Pause, ponder before buying land
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A wait-and-watch policy might pay dividends since a combination of factors is likely to pull down real estate rates, writes BIJU GOVIND
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—— Photo: Ramesh Kurup
Hot property: Property prices, on an upward spiral now, are bound to stabilise once certain policies are implemented.
Is this the right time to purchase land in Kozhikode? Will land values drop in the near future? Are government-initiated multi-crore development projects in and around the city going to be viable?
Prospective land buyers are pondering over such questions. Experts feel it is better to wait for a while since land still costs a bomb.
“The real estate market is still hot. Caution is advised before buyers jump into the fray. When it comes to real estate investment, acquiring land is the most profitable. But, land still commands high rates,” says P.S. Abdul Gafoor, a businessman dealing in property.
Several factors can be cited for adopting a wait-and-watch policy.
One of them is the stagnant market following the government decision to bring out a legislation to curb unethical practices in buying and selling of land in the State.
Fixing of fair price
The government has already published a draft of the fair price fixation of land right from the ward-level to the State capital. This will come into force within a month after amendments. All land records will be digitalised too.
Buyers will need to ensure that the land they wish to purchase is environmentally safe and do not pose zoning problems.
Mumbai’s case
The market nation-wide is seeing a correction in land prices. Prices were corrected by 10 to 20 per cent in cities like Mumbai. It is yet to touch the nadir, though. The realty market, which witnessed astronomical price increase and brought India’s financial capital on a par with the world’s most expensive cites, has finally taken a beating. Property sales there have nosedived by 17 per cent in past six months.
The winds of change have not yet blown to the cities in the State. However, the first signs of the transformation can be seen in real estate brokers stopping the practice of holding lands. They have now started booking profits.
Buyers must ideally wait at least four to five months before buying land. Home prices boomed from October 2007 and are now at their zenith. This is evident from the FDI equity inflow of about Rs.8,749 crore in 2007-08. This is nearly a five-fold increase when compared to the previous year.
Although the FDI equity participation in Kozhikode-based projects is negligible, lots of Non Resident Indians, particularly those based in West Asia, have invested in big housing and commercial projects.
Rates have a role
Another major cause of worry is the runway inflation that touched two-digit mark in June.
With the Reserve Bank of India (RBI) deciding to wage a war on inflation by hiking both the Cash Reserve Ratio (CRR) as well as repo rate all leading nationalised and private sector banks will hike loan rates.
The repo rate — the rate at which the RBI gives short-term money to banks in exchange of government securities — has been hiked with immediate effect to 8.50 per cent while the CRR will be hiked to 8.5 per cent on July 5 and to 8.75 per cent on July 19. The CRR is the mandatory deposit banks have to keep with the apex bank.
A fortnight ago the RBI hiked the repo rate by 0.25 per cent. Earlier the RBI had raised the CRR by 25 basis points to 8.25 per cent on April 29.
All these measures are meant to rein in liquidity in the system.
Bankers say there will be a slackening demand in housing sector on account of the hike in repo and CRR rates. Home mortgages are going to be stringent.
The rate hike already proposed by some banks will be in effect till the inflation drops to 4 to 5 per cent.
“Most banks have plans to hike interest rates on all retail portfolios,” said K. K. Ajith Kumar, Chief Manager, Federal Bank, Kozhikode.
Eye on stocks
Another indicator that the prices of land will soften is the realty index on the Bombay Stock Exchange coming down.
Experts say that the fall of the big stocks such as DLF, HDIL, Indiabulls real estate, Shoba Developers, Akruti city, Anant Raj, Puravankara projects, Omaxe, Unitech Limited and Ansal Infrastructure spell trouble for real estate industry.
This will be reflected in the realty scene in the State too, says Mr. Gafoor, who has also been actively trading in these stocks.
The BSE realty index was launched in July 2007 after the real estate sector witnessed tremendous growth in the past few years.
Several real estate companies came out with Initial Public Offering (IPO) and their free float market capitalisation and weightage in the index were in focus when the bulls were having a run.
All this, till the stock market crashed in January.
Scene in Kozhikode
The time is not ripe to buy land. But buyers keen on taking up long-term projects can always look around.
Kozhikode city will not witness a slowdown as is likely in Kochi and other Southern metros. “Zealous real estate brokers might book profits or block land deals,” says Nityananda Kamath, secretry, Calicut chapter of Kerala Builders Forum.
Builders say land prices in Kozhikode will stabilise soon.
“We feel that once the government published the fair value of land the land prices will be structured. The stamp duty will reduced to six per cent, ” he adds.
Projects on the anvil
Some of the huge projects in the offing will help sustain real estate business in the city.
The development of Beypore port, cyber park initiated by the Information Technology Mission at Thondayad and Advanced Technology Park at Ramanattukara are expected to be launched this year.
“All these are expected to happen simultaneously. We want youngsters to return, take up jobs and settle here,” sums up Mr. Kamath.
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