Trends of real estate market in India

Thursday, May 26, 2011 ·

Research wing of trying to find future trend in real estate market by using some unconventional tools. What its think that this time real estate market is heading for big fall, actually it seems it is heading towards burst. Few Points it would like to mention due to these factors thinks all type of real estate whether residential, commercial, retail all might will heading for secular bear market.
1) Over owned: - Real estate is one asset which is over owned by most of people. This is one class which didn't required very high level of expertise so every one found shelter under it. Who ever had money he/she bought apartment/flat/office and rent out and earned good rent and superb capital gain. All other assets class either gives very low return like fix deposit or debt etc and other assets like commodity, shares needs good skills and very risky. Due to this people started buying this asset and people certain extant over stretched and over bought this assets class. Here we are including builders also they leveraged themselves to build so called land bank.    
2) Herd mentality/ bigger fool theory: - Till now herd mentality (hearing some one made so much money in real estate brought new buyers in hope of making same sort of killing) and bigger fool theory (when one fool buy some thing and sell at higher to another fool) was working but it seems now it has peeked out because prices are not going up further.
3) Capital market sign: - One good quality capital market has that its discount any news very fast whether good or bad especially when we compare with real estate market. Capital market bit ahead of curve. In case of real estate the way real estate stocks got battered it shows that it has its doubt about the ability of this sector to give decent return.
4) Interest Rate: - We are now high interest regime that is double whammy for real estate sector. Builders holding huge stock and they have taken loans from private financiers at high interest rate and if we see 1Q results of realty companies their sales is lower then previous Q. This shows that builders are not able to sale at current prices. Now due to high interest rate people are not interested to buy house for their own use or investment purpose because of higher EMI they have to pay. Few of them might be already grappling with their it and this situation we have domino effect once prices start falling as it happened in American housing sector.
5) Foreign Direct Investment / Private Equity: - This route is also drying very fast or they are closing deal in such a way that they get fixed returns which as well as loan.Private equity players are not comfortable because of overly regulated sector.  
6) Government and RBI polices :- Now governments and our central bank's (Reserve Bank) polices and regulations and close watch on real estate sector making difficult to route black money in this sector.
       All these issues make us to believe that real estate prices looking for major fall. First we will sea price pain and letter time pain.  


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