With soaring realty prices, resale apartments offer a viable option for buyers who prefer to live in the city
Consider this: property prices are steadily going up in most cities. Despite a hiccup here or a slowdown there, realty prices tend to keep rising over a period of time across all urban markets.
Also consider this: with the ever growing population and increasing urbanisation, the demand for housing too has always been steady in only one direction – up.
Now, factor in the average Indian’s desire to have his/her own roof, at least one, if not more, to the above mentioned scenarios. This naturally leads to increasing demand, resulting in spiralling property prices, which in turn forces the price of land parcels inside city limits to skyrocket.
For a moment, forget about climbing home loan interest rates and the ever-increasing cost of living. What are the options for average Indians in cities to convert this desire into reality and have a roof of one’s own?
An independent house in the city – that has remained an unfulfilled dream for a majority of people. We are not even referring to the classes who can afford and the masses that do not aspire. For those placed between these two economic groupings, the dream of getting an independent home even in the suburban areas of a city is fast receding by a few kilometers every passing year, given the ever-increasing prices.
What about new residential apartments? People can aspire for them but not everyone can afford them as spiralling land prices due to limited supply of land parcels and increasing cost of construction are driving new apartment prices beyond the reach of a majority. Yes, there are plenty of choices – multi-storeyed structures and township developments – with very good amenities and facilities with somewhat affordable price options. But for that one has to relocate quite far from the central city limits, resulting in at least an hour’s drive to one’s workplace.
How about used apartments? Commonly known as resale apartments or secondary sales, these appear to be a viable option for those who want to live in the city, but are unable to cough up the money needed to acquire a new apartment.
“In all major metros of India, the trend of home buyers seeking to acquire residential properties in the secondary sales market is gaining popularity, especially in the urban parts of a city. As land within a city is scarce and prices are inflated, many developers have moved focus to the periphery and suburban areas. With capital values of new residential properties within the city having escalated beyond the reach of most homebuyers, acquiring a property on resale basis is emerging as a viable alternative,” says Sanjay Chugh, founder, Skylines Property Consultancy, who earlier had a stint with Jones Lang Lasalle, an international property advisory firm.
According to him, the differential pricing between a newly constructed apartment and a secondary one can range anywhere between 25 per cent and 50 per cent, depending on the city, location and age of the residential unit, and this offers a great advantage to those looking at such an option. Even if a homebuyer factors in the cost of renovation of the apartment, it would still cost a lot cheaper than a new one.
Factors driving homebuyers to choose a second sale are proximity to work place, educational institutions, hospitals, clubs, shopping centres, local transport network, etc. Although moving away from the city could offer a large-sized apartment with better lifestyle facilities for a lower price than in the city, many homebuyers are still sceptical and prefer to live within the city, even if it means compromising on the space and the facilities. “In Chennai, over the last two years prices of resale residential apartments have shot up by 40-50 per cent and are still rising.
Airing an almost similar view and seemingly agreeing with the above observation, Ganesh Vasudevan, business head and vice-president, Indiaproperty.com, says, “It is impossible to buy a new apartment well within city limits in a metro like Mumbai. While in cities like Chennai and Bangalore, new apartments are available despite limited stock, the limited supply of land parcels has resulted in these selling at steep prices, thereby putting off a majority of buyers.”
Homebuyers looking at the option of resale apartments should go for residential units that are 8-12 years old, since these not too old and they come with a fair discount to the prevailing market prices for new apartments. While resale apartments over 15 years of age come at attractive price levels, they may lack the modern facilities including ample car parking and also have structural issues that may warrant constant repairs, thereby adding to the cost.
“Apartments that are 5-10 years old are ideal, since the price will be attractive and the cost of refurbishment will also not be so high,” he says. In Chennai, the demand is quite good for resale apartments in residential areas in the heart of the city like Mylapore, Alwarpet, RA Puram, Gopalapuram, T Nagar and Anna Nagar, besides Adyar and Thiruvanmiyur in south Chennai.
In the case of Delhi, the secondary sale market is fairly buoyant, says Shveta Jain, director – residential services, Cushman & Wakefield. “The demand for these properties is an obvious trend due to the lack of space in main Delhi. The secondary sale of the property has an advantage of quick transaction if the expected value is in line,” she said, while adding that the price appreciation in newly built properties and resold properties cannot be really differentiated.
According to Jones Lang Lasalle’s Santhosh Kumar, the secondary sale market for residential apartments and property is very hot at this moment in Delhi. There are areas such as Shanti Niketan, West End, Anand Niketan, Hauz Khas, Panchsheel and New Friends Colony to name a few that are seeing a lot of demand in this segment.
“Newly constructed homes will carry high prices due to the enhanced amenities provided, so people are opting for discounted resold property. If you compare a newly constructed property and an old property in the same location, there will be a price difference of 10-15 per cent. Land prices have gone up 10-15 per cent in the last 6-12 months which has increased the cost of newly-built apartments.
In Hyderabad, too, resale properties are quite popular and find buyers quickly. Though there is no estimate on the number of flats or apartments put up for sale, people do seek them for cost or locational advantage. Areas near Kukatpally, Hitec City and surrounding areas have seen a lot of resale apartments. The reason: slowdown and subsequent loss of jobs about a year or two ago.
The area now quotes Rs 3,000 per sq ft or more for new apartments coming up. Typically, resale properties are sold for about 25 per cent less compared with prevailing market prices for new apartments. However, with the return of the job boom, most of them are getting sold and mostly, it is agents in the unorganised sector who handle these transactions. The other reasons for apartments being put up for resale are change of job, default in loan repayment or purchase of new properties.
According to Venu Vinod, one of the promoters of Cyber City Builders, about 25 per cent of property buyers in areas that are close to IT companies are from other states. Most of these people dispose of the properties at the time of moving out.
M Sreedhar Reddy, president of National Realtors Association-India, feels the inventory of resale apartments could also have increased due to the recent political turmoil for and against a separate Telangana.
The city has also seen a trend wherein a group of youngsters pool their monies to buy a flat closer to their office. They do not have a long-term plan for the property, Reddy said. Further, the growing interest rates on home loans will also force people with multiple properties to sell them to maintain cash outflows, thereby increasing the supply of resale apartments in the market, he added.
Is everything so rosy for the resale property market? Aren’t there any pitfalls? “Some of the disadvantages of secondary sales are age of the building, maintenance and upkeep, scarcity of car parking, lack of common facilities and higher registration cost,” points out Chugh. “But advantages like lower cost of acquisition, opportunity to stay at a convenient distance from the social infrastructure, lesser common area loading and choice of apartments make secondary sales attractive,
Indiaproperty’s Vasudevan feels that with increasing demand, availing home loans for resale apartments has become much easier over the years. “If the title is clear and the property has been maintained well, there will not be any issues in getting a loan,” he says. But he adds a word of caution. “If one chooses to opt for a resale apartment, which is 15-20 years old, then the bankers reduce their exposure to the value of the property, thereby increasing the pressure on the buyer to bring in a higher personal contribution to complete the deal.
