When we talk about home buyers sitting on the fence, we are basically talking about buyers who want to buy a home but are indecisive. Implied therein is that such buyers have the capital to buy now if they choose to – they point is they are not choosing to. There may be many reasons for this. They may simply not have found the kind of home they are looking for as yet. Or, they have found it, but are waiting for home loan interest rates to come down. Or – and this is the most common reason for fence-sitting today – they are waiting for a price correction.
There are times – and cities – when it makes sense to wait for a correction, but it is always a calculated risk. Also, buyer indecisiveness is usually the result of confusion, not certainty. In today’s scenario, potential home buyers receive conflicting information from a variety of sources. They hear or read of predictions that that residential real estate prices are bound to come down soon, and obviously do not want to risk incurring a loss by making a purchase decision at this point in time.
On the other hand, prices may not come down as predicted, and may even rise. If this happens, the intending home buyer will have missed the opportunity to buy at a lower price, and/or the properties that he or she had their eyes on all along may be sold to other buyers. This is not what they had hoped for while sitting on the fence, but it is often what happens.
Should an end-user – a person who intends to buy a home for personal use and not as an investor looking to sell it soon at a higher price and maybe rent it out till then – time the market? Investors can afford to wait and watch to see if prices reduce in an identified location. If they were wrong, there are always other opportunities. But an end-user buys a home because it is seen as ideal in terms of location, size, configuration and quality of neighbourhood. Such properties are often identified after a long and grueling search. If one finds such a home which meets all one’s requirements and waits for prices to correct, one risks losing a lot more than just some money.
Of course, every end-user is also an investor at heart these days, in the sense that home buyers are very well-versed about the phenomenon of appreciation, look at their homes as hedges against the possibility of hard financial times in the future, and want to be able to bequeath a valuable asset to their offspring. This is absolutely logical. However, it should be remembered that real estate always gains in value over a sufficient number of years. The only exception would be if one has bought a home in a completely ‘dead’ area where no support infrastructure will ever come in, or from an unscrupulous builder whose project turns out to be illegal.
Prices may indeed come down to some extent in a certain market, but these are usually not price corrections but the kind of occasional fluctuations which are typical of every market. Waiting for such course corrections makes no sense if one is looking for a property that has a lot more work to do than merely gain in value – namely, a home in which one wishes to live in, raise a family and grow old in, and which allows the family to become part of a good neighbourhood and social fabric.
Also, one does not have to wait for a correction to get a better deal on an identified property. Unless it is the equivalent of a rare jewel of which only one exists and people are falling over each other to bid for it, the developer will be open to discussing better terms with a genuine buyer. In today’s market scenario, this willingness to negotiate is, in fact, a given, and something that buyers can benefit from right away without waiting for anything.
In short, it does not make sense for home buyers to wait for a correction, and especially not in cities where properties are selling slowly but still well enough without developers having to resort to bringing down prices. In such cities, it is more likely that prices will remain flat for a while longer and then start rising again. The best plan for home buyers in such cities is to identify the properties that interest them the most and then negotiate a good deal with the developer.
Authored By: Arvind Jain, Managing Director – Pride Group
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