• Real Estate scenario in the last ten years

    Starting 2003, Real estate prices saw an unprecedented rises, not only in metro cities but also tier 2 & 3 cities.
    The growth was sustained for the next 5 years, fuelled by a booming economy, increased salaries and affordable home loan rates.
    The 2008 economic downturn started to buck the trend. Rising home costs increased home loan rates and overall uncertainty of the global financial markets brought in a phase of slow growth in the real estate sector.

    The following broad points contributed to the slowing market

    • Oversupply – Developers, small and big alike were building and supplying property inventory at a ferocious pace, the supply soon started to overtake the demand.
    • Cost increase – The earlier 5 years, had seen property prices sky rocket, making properties dearer to the average Indian.
    • Economic downturn – Global markets faced a torrid time, creating its repercussions on the Indian market as well. Uncertainty over jobs, investment returns made the average investor vary of any long term investments.
    • Interest rates – Home loan interest rates increased to an extent where they were no longer attractive for someone willing to invest in property.

    The above scenario also had a an cascading effect on the Builder/ Developer community

    Although development laws in the country were never conducive to Real estate and Infrastructure development, developers were building and delivering projects on the increased demand and surge in prices.
    Bank funding soon started to dry up for the real estate sector and NBFC & private funding lending rates were exorbitantly high, this started to put pressure for funding the projects
    Riding on the property boom, land prices had steadily kept increasing through the decade, coupled by very little available freehold land available for development
    Most of the land parcels in Mumbai are owned by the Parsi Trusts or Government land leading to mad scramble for available land parcels, driving the price up.
    Although the city has available land, it’s been encroached by illegal slums, in fact 60% of land in Mumbai is covered in Slums.
    The government never had a comprehensive redevelopment policy, and existing policy implementation is hindered by numerous litigation, archaic laws spanning three separate government bodies and undesirable interference from the local politicians.
    Stiff competition from land owners turned developers and other unscrupulous elements becoming developers, quality and deliverable started suffering.

    This few rotten apples brought a bad name to the industry already reeling under enormous pressure.

    Inventory – Reports state a huge unsold inventory with the developers, the statement though is not entirely true. Most of the inventory is of premium and super premium category, and hence property prices have not gone down as expected. Demand – Although the demand is not as high as seen in the last decade, Indians have always preferred investing in Gold and Real estate. Adding to it is the growing middle class with better earning and subsequently better spending power, the demand is still maintained.
    Loan rates – Home loan rates have been steadily decreasing and making fringe customers availing the same.
    Buying capacity – A young working middle class, shift towards nuclear families and increasing
    consumerism, want of better homes with comforts is pushing the number of people buying their own house higher.

    Teething problems still persists though – Lack of vision and implementation of laws from the governments hinders the growth.
    Clearances, Occupation certificates and other compliance are still a major hurdle that developers have to pass and home owners are skeptical in this atmosphere of uncertainty.
    Lack of transparency at every level is also a major concern for home owners and investors alike.
    Ever increasing taxes and increase in costs are an ever present hazard for all stakeholders.

    So, is it all bleak? Certainly not.
    Most cities in India have shown signs of recovery in the past year.
    Developer companies are forced to be transparent due to large FDI funds finding its way into India.
    In fact India has seen the maximum amount of FDI inflows this compared, even beating China.
    A stable government in the centre with a focus on development should create a more stable environment for the developers and the investors.
    Loan rates have been steadily decreasing and with inflation in control, this seems to be the way forward.
    Although the price points for entry in real estate are still towards the higher side, overall economic growth and increase in young working class should maintain a steady demand.
    Economic stability and better growth prospects are creating a positive attitude, which should boost the sector.
    Tier 2 & Tier 3 cities are opening up as opportunities, both as investment destinations and potential customers.

    As with any investment, don’t expect miracles, right investment for the right time should fetch good steady returns.
    Have patience, a real estate project takes at least 3 years to develop; don’t expect it to give fantastic returns within 3 months.
    Choose your investment wisely, carry out due diligence of the project, its purpose and potential.
    What may be a good investment for your friend or family may not be the case with you.

    Identify your needs clearly, explain them to your consultant and then make an informed decision. Many a people have got into wrong investment just because their “known” invested in the project or suggested the investment.

    Renting out properties is becoming safer with Agreements required to be registered by Law.

    Police intimation and Society NOC are also compulsory which is creating better compliance and transparency within the system.Commercial rentals outperform Residential rentals considerably, but Capital appreciation remains the primary source of ROI.

    Proposed legislation like REITs, once implemented, are expected to provide a safe and diversified investment option at reduced risk, all under professional management, to ensure the highest return on investment.

    We as Indians have always invested in Real Estate …..” Roti, Kapda aur Makaan” have been are basic
    With Roti – we have become health conscious
    With Kapda – we have become brand conscious
    With Makaan – lets become WEALTH conscious.

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