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Property Price Trends – Are they Reliable or Misleading

Property price trends available on property portals is one of the important indicators for potential buyers. The biggest dilemma for any buyer is whether he is paying a right price for the property or not. On the other hand, owners are concerned whether they are getting the right price for their property or not. In my post, Fair Value of Property i shared how to find the right price of the property. It basically considered the rental value of the property to arrive at Property price trends. In highly skewed markets like Mumbai and Delhi, it might not be the right way to find out the Property price trends. Therefore, as a buyer, i will rely on Property price trends of an area/project available on the leading online portals. The million dollar question is whether the information available on property portals is reliable or misleading.

Real Estate – Bulls and Bears

Similar to the stock market, there are BULLS and BEARS in the real estate market. Builders are in BULLS category and Hardcore real estate investors are BEARS. These investors change position post investment because of obvious reasons. Real Estate agents take their position depending on case to case basis. The end user or common buyer become scapegoat like a retail investor in the stock market. Similar to the stock market, the Property price trends are controlled by the big operators like Builders and Real Estate investors. The reason being, they control the real estate inventory to keep prices under control (read: manipulate property prices). On paper, the price always moves northward irrespective of ground realities. A common buyer like me cannot become bear/negotiate as he does not have financial muscles. The big investors buy 20-30 flats and can command the price of their choice both at the time of purchase and sale. The builder also indemnifies investors against any adverse price movement.

Recently i received a query from one of the readers in Mumbai. He invested in one of the reputed projects in Mumbai in 2013. Now even after 3 years, the prices are same i.e. there is NIL appreciation. Similar to the stock market, the entry price point is very crucial in real estate. If you enter at high price point then the future scope of appreciation will shrink. In his case, he paid a premium of 25% at the time of purchase to the builder. This premium is adjusted against appreciation during next 3 years. He was trapped by the Property price trends available on the property portals. In my previous post, i cautioned readers against online advertisement listed on property portal. Let’s check how property price trends are derived by online portals that mislead the potential buyers.

Property price trends – How it is derived?

The online space is dominated by the builders and real estate agents. You will hardly find handful owners listing their properties directly on property portals. Most of the real estate agents are direct channel partners of the builder, therefore, they join BULL category. During my interaction with some of these real estate agents or direct channel partners, they told that they don’t charge any brokerage from a buyer. Can u believe this?

You must have seen ads that prominently highlight Zero Brokerage by agents and brokers. The reason for Zero brokerage is that a broker or real estate agent is handsomely incentivized by the builder. The brokerage can be as high as 5% if the builder is getting the price of his choice. Therefore, higher sale price means higher brokerage amount. Few years back, the buyers had faith on real estate agents for correct information but it is not true anymore. In many instances, the agents/brokers are investors in a flat :).

I observed a new trend is emerging on brokerage front. The slab based brokerage is linked to the sale price of the property. The range of property price is as wide as 25% in upcoming areas. A particular project in Navi Mumbai is sold by the builder at a base selling price of Rs 5000 psf. Various brokers offered me a price between Rs 4900 psf to Rs 3800 psf depending on their assessment of a client. One of the brokers told that if he will sell at Rs 5000 psf then he will get 5% brokerage and at Rs 4200 psf the brokerage will be 2%. He further added that hard negotiators/buyers pitch for Rs 3800 but at this price his brokerage will be 1% and he was simply not interested. The price also depends on the cash flow of the builder. The price may drop in case of low cash flow for the builder.

The skewed property price trends on property portals help builders/brokers/agents to sell the property at a higher price. It’s a cyclic process. Property price trends are derived based on the property listings on the particular portal. Normally, three values are listed i.e. Highest Price, Lowest Price and Average Price. Now to share the anomaly, I checked the average buy price in Taloja (Navi Mumbai) and the result was quite interesting. Let’s check

Portal A: Rs 4110 / sq ft

Portal B: Rs 4520 / sq ft

Portal C: Rs 4377 / sq ft

Portal D: Rs 4338 / sq ft

Portal E: Rs 5150 / sq ft

Portal F: Rs 5187 / sq ft

Portal G: Rs 4836 / sq ft

Portal H: Rs 4168 / sq ft

Please note that a difference of Rs 100 / sq ft for a 1000 sq ft flat means an absolute difference of Rs 1L for a buyer or approx 2% of property price. The difference between highest and lowest average buy price is as high as Rs 1000 / sq ft i.e. approx variation of 20% in property price against highest listed Avg price and 25% of lowest listed Avg price. Assuming average appreciation in this area is 5% and you paid 25% premium for purchase. This premium will eat roughly next 5 years return :). In this case, the buyer will complain that there is NO Appreciation.

Normally buyers only check a few popular property portals rather doing thorough research on Property price trends. If i see consistent property price trends on few popular portals then it’s a human tendency to believe the same. For example, When i checked that listed price is approx Rs 5000 psf for Taloja on three popular portals then i believed that it is the actual price. In reality, it is not true.

When i linked the Property price trends with property listings, i observed that most popular portals are reporting higher no compared to least popular ones. Secondly, approx 95% listing on popular portals is from builders and real estate agents. In other words, they are trying to skew the prices higher. Therefore, Property price trends are rigged and tempered by the builders and real estate agents/brokers. The property portals dominated by the end user or not so popular among builders/agents depicts a more realistic picture. As i mentioned earlier that a buyer should look beyond popular portals and do a thorough research.

Summary: The Property price trends are not a true reflector of property prices in a particular area. Firstly, a buyer is confused whether the price listed is base selling price or all inclusive price. On top of that, there is a huge variation of 20%-25% in average buy price of the same area as reported by eight different property portals. In this whole confusion, a buyer may end up paying a huge premium over current property price.

In all probability, if you are buying a property from the builder, you will end up paying a huge premium compared to resale price. You should buy Resale Under Construction Property that is available at the more realistic price point. Lastly, Property price trends listed on property portals is actually a price trend of listed properties, not the actual market rate. It’s a common sense, if i list 10 properties at Rs 6000 psf then it will automatically skew the average buy price upwards. As an agent, i will adopt dual strategy so that i can generate leads through listings at lower price point. On the other hand, to skew average buy price, there will be dummy listings at higher price points. Therefore, you may find a huge variation in the lowest and the highest psf rate for the same project. In my next post, i will share how to arrive at more realistic and actual property price compared to Property price trends available on online portals.

Copyright © Nitin Bhatia. All Rights Reserved.

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8 years ago

Very Nice post!! ThQ Nitin.. :-)

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