Real Estate has always been the most sought-after asset class. And with good reason, considering the kind of returns it has delivered in the past. Even after the financial crisis of 2008, some real estate markets saw unprecedented growth.
People shifted to real estate and gold as safe havens as their investment in equities lost more than half the value.
The increased demand for real estate between 2009 and 2013 saw prices double in some markets. For example, Noida Extension, one of the key markets in Delhi-NCR, saw prices rise from Rs 1,830 per square feet in March 2010 to Rs 3,056 per square feet. in March 2012, as per data by PropTiger.com. Unavailability of affordable houses in Mumbai led to a significant rise in prices in areas like Dombivali which fall in the Mumbai Metropolitan Region (MMR). Prices in Dombivali went up from Rs 2,176 per square feet. in March 2008 to Rs 4,856 per square feet in March 2012. But after 2013, prices have stagnated or even declined across markets.
However real estate was the second-worst performing asset class in 2014 after gold. One of the biggest reasons for this was the flurry of new launches in 2010-12. As a result, supply is more than demand in most parts of the country.
INVENTORY PILES UP
According to a report by Knight Frank: “Delhi-NCR, India’s largest residential market, is looking at an unsold inventory of 189,768 units.” It will take nearly five years to get fully absorbed at the current pace. With market dynamics changing, experts say prices are not expected to rise sharply in the near future and those looking for quick returns should stay away.
Rajeev Bairathi, Executive Director, Knight Frank , says: “Whether commercial or residential property, the investment should be for the long term. Real estate is a long-term asset class and, therefore, the investment horizon should be five to seven years.”
Investors earned huge returns during the real estate boom between 2004-05 and 2010-11. But in the current scenario, with inventories piling up across the country, experts say one should not expect huge returns. They expect only a slight price rise in various markets. However, for end-users, it’s a good time to seal the deal.
DISCOUNTS AND NEGOTIATIONS
With distressed selling happening, experts say it is the best time to buy a house. According to the latest Knight Frank report: “Stagnant prices and delayed project deliveries have contributed towards investors entering into a ‘distressed resale’ mode, as they are now offering to exit at a 15-20 per cent discount to the primary market price.” Moreover, with oversupply, it is a good time to enter into negotiations.
Sumit Jain, Co-founder & CEO, CommonFloor.com , says: “With multiple options, buyers are spoilt for choice. Considering this, it is a good time for end-users to enter the market and negotiate with the builder/seller.” Saacketh Chawla of Colliers agrees: “Genuine buyers may be able to get good discounts from developers at a time they need funds and sales are down. However, the buyer should make sure that the price point on which the developer is offering a discount is not already inflated.” Experts say though the offers may be tempting, buyers should keep their eyes open.
This is because these offers could be a way to attract buyers for a project that may be unviable or difficult to implement because of problems with approvals. So, before buying, buyers must check whether all approvals are in place or not.
