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Real Estate: Regaining Strength

| 11/5/2012 1:40 PM Monday

There was a time when Real Estate used to be a calling of the upper class. But with changing economic dynamics came about a vast change in the demography and the prosperity levels of the Indian population particularly in developed cities and towns. This coupled with the changing face of the financial sector brought about an unprecedented boom in Real Estate which continues even today. No matter how gloomy the scenario surrounding this sector, the economic equations of demand-supply and prices have never reflected true economic  principles. Prices have defied gravity in prime cities and locations despite the fact that the overall economy has been facing greater difficulties. It is this very nature of the sector that makes it different and worth talking about.

Buying a dream home has always been a priority for everyone. It is an aspiration that none would want to give up on and achieve as soon as possible. The want of buying a home has always been high; no wonder property prices have been rising making it difficult for many to fulfill this much coveted dream. As realty prices continue to skyrocket there has always been a never ending debate on whether this is the right time to buy realty.

With property prices on an every upward growth trajectory, it is obvious that buyers look at timing the market. Over the past one and half year, property prices, though have not witnessed any run-up, they have neither gone down. Now, there are certain green shoots that are indicating towards an improvement in prices. And, if these green shoots convert into a full-fledged revival, prices may again be out of reach for many. Hence, the one vital question to be answered in the current context is whether it is the right time to buy property now?

So, what is the right time to buy into Real Estate? The answer to this is not as straight-forward and simple as the question seems to be. Here are some pointers that could help you make a more informed decision.

The Current Market Scenario

The difficult phase that the Indian as well as global economies have witnessed for quite some time now is known to everyone. The Indian Economy has been witnessing a period of slow growth and high inflation for several quarters over the recent past. This scenario led to a higher interest rate regime, directly impacting the sales volumes in the residential segment. A slowdown in demand was acutely visible while on the supply side too matters got complicated as projects had to be stalled midway through for want of funding. This was particularly true of the three leading markets including Mumbai, Delhi-NCR and Bengaluru.

The first half of 2012 witnessed the addition of more than 19000 units across 66 projects in the NCR, Mumbai and Bengaluru regions; a drop of about 40 per cent as compared to more than 26000 units from the 83 projects that were launched during the second half of 2011. According to Pranab Datta Chairman Knight Frank “the economic growth in the last few quarters has remained stagnant with the manufacturing and service sector growth rate reducing with each passing quarter. The Real Estate sector is not immune to this and hence the impact has been similar”. As a result, volumes declined significantly in the leading markets of Mumbai, Bengaluru and Delhi (NCR). Further, the residential segment also faces another important issue where projects, particularly in the leading markets are priced beyond the affordability levels. So there has been a lower off-take and buyers have been waiting for price corrections.

This sentiment is also shared by Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, a leading Real Estate research firm, who say’s “generally speaking, the residential market is currently at low ebb. Many projects in the central locations of our metros are priced beyond affordability. This has caused a supply overhang in older projects, while newer projects are already being launched at lower rates but are still selling only sporadically. The general sentiment is muted and buyers are awaiting either a correction in prices or more reasonable home loan interest rates”. So, while developers continued to face challenges of high borrowing costs, rising input prices and shrinking profit margins, buyers had to bear the brunt of high interest rates coupled with delayed product delivery thereby resulting in a sluggish market.

 

Find More Articles on: DSIJ Magazine, Real Estate Strategy, Special Report, Economy, Markets, Market Outlook, Product, Mid Cap

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