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Pankaj Kapoor, MD of Liases Foras , a real estate research firm, believes that if the prices fall, it could take two to three years before they return to the current level. "In the next couple of quarters, property prices could drop by 20% and then remain stagnant for the next two years," he says. A further hike in prices will impact property sales further. "In the previous quarter, we were expecting the prices to drop. However, they went up by 9% because of which there was a huge drop in sales," says Kapoor.
If you have decided to sell your house, do so before the monsoon sets in. "Many buyers don't buy houses during the monsoon. So, the best time to sell is during summers when people have time to spare as their children's schools are closed for vacation," says Dalal.
Your decision to sell should depend on various other factors. Here are some that you need to consider.
Property market in your locality/city
What is applicable for city limits in Mumbai or Delhi may not be true for the location where you own property. The residential property market is location-specific and the prices will vary for different areas. Study the market condition in the region before you take a decision. Visit a couple of property brokers to get a better idea of the prices. Says Sanjay Dutt, CEO (business), Jones Lang LaSalle . "You should check if the demand for houses exceeds supply in the locality where you want to sell. If there is a high degree of unsold, completed apartments or a significant number are under construction, then you may consider selling now." The markets where houses are largely owned by investors could be more vulnerable to steep drops than areas where these are occupied by owners, as investors are more likely to sell at the first hint of a market flux.
How soon do you need the money?
Property is an investment that should not be liquidated in a hurry if you do not need the money urgently. Getting the best deal may require you to wait patiently for a buyer or even spend some money to add value to your house. However, keep in mind that the rate of appreciation in property prices over the next couple of years will be much slower. "Due to the increase in interest rates over the past few months, no major upswings in property prices are expected over the short term. However, you should avoid panic selling," says Dutt. "The extent of a real estate investor's uncertainty depends partly on his investing perspective and objective. If the investor has a long-term view and plans to hold the asset for a decade or so, there is little to worry about," says Ramesh Nair, MD (West India), Jones Lang LaSalle.
Another factor that you need to consider is the rental return from the property. While prices may fluctuate, rental revenue is a source of steady income for the owner. Also, rental rates are less volatile than capital values. If possible, try to find out the potential infrastructure development in the area as this will further push up the price of the property.
Price it right
The biggest mistake sellers make is in pricing their property too high. They base it on market value at the peak of the property boom. According to Dutt, if an investor has decided to sell, he should go by market valuations and not wait to achieve the ever-elusive 'highest price'. "If you buy and hold for more than 10 years, you are not likely to lose in any case. Real estate values generally go up in the long run, with very few exceptions," points out Dutt. The best way to determine the ideal price for your property is to check with brokers in the locality or by listing it on an online property portals such as magicbricks.com or 99acres.com.
Consider the taxes
How much you actually get after you sell the property will depend on how long you had held the investment. Vikas Aggarwal, a Delhi-based tax consultant, says that if you sell your house within five years of buying it, you will lose all the tax benefits that you had claimed for loan repayments. "You will also have to pay capital gains tax on the profit. One way to avoid this is to use the sale proceeds to buy a house within two years of selling the previous one, or use it to fund a house you bought a year before," he says.
You can also avoid the capital gains tax by investing the money in specified bonds under Section 54EC. These typically give a return of 5.5% per annum and have a lock-in period of three years. The investment in bonds that are issued by Nabard, NHAI and REC are eligible for capital gains tax savings. If you want to invest in other asset classes, such as equities, mutual funds or gold, you will have to pay a 20% tax on the capital gains.
Is the property mortgaged?
Selling a house that has an outstanding loan requires a lot of documentation. So try to pay the loan and then sell the house. If you are unable to do so, you will have to sign an agreement of sale with the buyer outlining the terms of payment. The buyer can either pay you upfront and you can use the money to prepay the loan, or you can take a second loan, pay off the first one and then sell the house. The sale proceeds can be used to pay the second loan.
How to sell
Selling property is much more difficult than buying one. Unless you know of people who are willing to give a good price for your house, a property broker may be your best bet. However, do your homework before approaching one and do not be guided simply by what he says. Brokers usually have a wider reach and are more clued in to the local property market than an individual seller. You can also list your property online. Some realty portals allow sellers to list the property for free for some time. Others may levy a fee of Rs500 for six months. Over the past couple of years, people have also invested in property, where builders have offered to buy it back at the end of a specified period. Even if you have this option, it will be better to check the open market before approaching the developer.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As property prices surpass the 2008 peak levels, realty experts believe that a correction is possible in the next couple of quarters, especially in cities like Mumbai and Delhi where prices have risen fast. This, according to some experts, offers an opportunity to real estate investors to book profits.
Parvinder Singh Sidhu , a Navi Mumbai-based marketing executive, concurs. Five years ago, Sidhu had bought a second home, a 750-sq-ft flat at Belapur in Navi Mumbai for about Rs13 lakh. Currently, the price of the flat is Rs35-40 lakh. However, with the talk of correction in the Mumbai property market, Sidhu is planning to sell this house and book profits now. "I have a house to stay, so I can think of selling this one. If property rates correct in the future, I could buy a similar property at a lower price," he says.
Is it really a good time to cash in on your real estate investment? Yashwant Dalal , president of the Estate Agents Association of India, says that property prices in many markets have begun to show signs of correction. "We expect the prices to go down by 25-40% in metro cities, where the rates have peaked. If you had bought a house earlier solely as an investment, I would suggest that you sell as soon as you can and buy a similar property at cheaper rate later," says Dalal. According to him, property bought even three years ago may have appreciated nearly 100-150% in some areas, so it may be a good time to book profits.
Parvinder Singh Sidhu , a Navi Mumbai-based marketing executive, concurs. Five years ago, Sidhu had bought a second home, a 750-sq-ft flat at Belapur in Navi Mumbai for about Rs13 lakh. Currently, the price of the flat is Rs35-40 lakh. However, with the talk of correction in the Mumbai property market, Sidhu is planning to sell this house and book profits now. "I have a house to stay, so I can think of selling this one. If property rates correct in the future, I could buy a similar property at a lower price," he says.
Is it really a good time to cash in on your real estate investment? Yashwant Dalal , president of the Estate Agents Association of India, says that property prices in many markets have begun to show signs of correction. "We expect the prices to go down by 25-40% in metro cities, where the rates have peaked. If you had bought a house earlier solely as an investment, I would suggest that you sell as soon as you can and buy a similar property at cheaper rate later," says Dalal. According to him, property bought even three years ago may have appreciated nearly 100-150% in some areas, so it may be a good time to book profits.
Pankaj Kapoor, MD of Liases Foras , a real estate research firm, believes that if the prices fall, it could take two to three years before they return to the current level. "In the next couple of quarters, property prices could drop by 20% and then remain stagnant for the next two years," he says. A further hike in prices will impact property sales further. "In the previous quarter, we were expecting the prices to drop. However, they went up by 9% because of which there was a huge drop in sales," says Kapoor.
If you have decided to sell your house, do so before the monsoon sets in. "Many buyers don't buy houses during the monsoon. So, the best time to sell is during summers when people have time to spare as their children's schools are closed for vacation," says Dalal.
Your decision to sell should depend on various other factors. Here are some that you need to consider.
Property market in your locality/city
What is applicable for city limits in Mumbai or Delhi may not be true for the location where you own property. The residential property market is location-specific and the prices will vary for different areas. Study the market condition in the region before you take a decision. Visit a couple of property brokers to get a better idea of the prices. Says Sanjay Dutt, CEO (business), Jones Lang LaSalle . "You should check if the demand for houses exceeds supply in the locality where you want to sell. If there is a high degree of unsold, completed apartments or a significant number are under construction, then you may consider selling now." The markets where houses are largely owned by investors could be more vulnerable to steep drops than areas where these are occupied by owners, as investors are more likely to sell at the first hint of a market flux.
How soon do you need the money?
Property is an investment that should not be liquidated in a hurry if you do not need the money urgently. Getting the best deal may require you to wait patiently for a buyer or even spend some money to add value to your house. However, keep in mind that the rate of appreciation in property prices over the next couple of years will be much slower. "Due to the increase in interest rates over the past few months, no major upswings in property prices are expected over the short term. However, you should avoid panic selling," says Dutt. "The extent of a real estate investor's uncertainty depends partly on his investing perspective and objective. If the investor has a long-term view and plans to hold the asset for a decade or so, there is little to worry about," says Ramesh Nair, MD (West India), Jones Lang LaSalle.
Another factor that you need to consider is the rental return from the property. While prices may fluctuate, rental revenue is a source of steady income for the owner. Also, rental rates are less volatile than capital values. If possible, try to find out the potential infrastructure development in the area as this will further push up the price of the property.
Price it right
The biggest mistake sellers make is in pricing their property too high. They base it on market value at the peak of the property boom. According to Dutt, if an investor has decided to sell, he should go by market valuations and not wait to achieve the ever-elusive 'highest price'. "If you buy and hold for more than 10 years, you are not likely to lose in any case. Real estate values generally go up in the long run, with very few exceptions," points out Dutt. The best way to determine the ideal price for your property is to check with brokers in the locality or by listing it on an online property portals such as magicbricks.com or 99acres.com.
Consider the taxes
How much you actually get after you sell the property will depend on how long you had held the investment. Vikas Aggarwal, a Delhi-based tax consultant, says that if you sell your house within five years of buying it, you will lose all the tax benefits that you had claimed for loan repayments. "You will also have to pay capital gains tax on the profit. One way to avoid this is to use the sale proceeds to buy a house within two years of selling the previous one, or use it to fund a house you bought a year before," he says.
You can also avoid the capital gains tax by investing the money in specified bonds under Section 54EC. These typically give a return of 5.5% per annum and have a lock-in period of three years. The investment in bonds that are issued by Nabard, NHAI and REC are eligible for capital gains tax savings. If you want to invest in other asset classes, such as equities, mutual funds or gold, you will have to pay a 20% tax on the capital gains.
Is the property mortgaged?
Selling a house that has an outstanding loan requires a lot of documentation. So try to pay the loan and then sell the house. If you are unable to do so, you will have to sign an agreement of sale with the buyer outlining the terms of payment. The buyer can either pay you upfront and you can use the money to prepay the loan, or you can take a second loan, pay off the first one and then sell the house. The sale proceeds can be used to pay the second loan.
How to sell
Selling property is much more difficult than buying one. Unless you know of people who are willing to give a good price for your house, a property broker may be your best bet. However, do your homework before approaching one and do not be guided simply by what he says. Brokers usually have a wider reach and are more clued in to the local property market than an individual seller. You can also list your property online. Some realty portals allow sellers to list the property for free for some time. Others may levy a fee of Rs500 for six months. Over the past couple of years, people have also invested in property, where builders have offered to buy it back at the end of a specified period. Even if you have this option, it will be better to check the open market before approaching the developer.
