Property bubble – A myth
With home prices always on a rise; for instance, Chennai realty prices have more than tripled since 2007; the ultimate asset class investment as per the majority of Indians is considered to be real estate.
Although, currently there are signs of a slowdown, within the last quarter, out of the 26 residential markets prices of property fell in 22. Cautiousness is leading potential home buyers to stay away from investing in homes.
This cautiousness seems to have had been triggered by the recent increase of already high interest rates on home loan along with the steep escalation of price, which have resulted in homes falling under certain segments unaffordable. The present economic slump has impacted job prospects and salary hikes, making buyers more risk averse.
Considering the above aspects in addition with the dried up funding, diminishing holding power of the developers, huge discounts etc, which have been impeding real estate’s growth still do not justify the concept of “bubble burst” in real estate.
Even though, transaction figures have slowed, the interest of buyer in residential spaces still remains healthy within most markets. Only a handful of markets would witness a price correction.
In the present scenario, a prospective buyer should chiefly watch out for the most vulnerable realty segments which includes Tier-3 markets, localities with a high levels of ‘speculative’ buying and luxury homes within certain cities.
Tier-3 markets:
Due to excess supply of residential units, Tier-3 cities might witness slumping real estate sales for quite a while. For example, the city of Nagpur already possesses a ten year supply of housing units. The city of Coimbatore churns out 7,000 units annually in contrast with the annual demand of just 500 units. These markets are most likely to witness a price correction along with developers exiting.
‘Speculative’ buying:
In the event wherein the property prices do not appreciate, second/third-home buyers or speculators are most likely to hastily exit the market. As, this lot invests within real estate with the aim of turning a quick profit rather than long term investments. Thus, markets which have rampant buyer speculation might witness sharper corrections with investors offloading their holdings.
According to real estate experts and consultants, speculative buying is sizeable in localities like Dwarka Expressway (NCR), as much as fifty per cent of the total sales speculative.
Luxury segment:
Price corrections are seemingly steep within the luxury segment, wherein allured by high profit margins developers have created an over-supply. For illustration, mid-income housing in Pune remains robust while demand for high-end and luxury properties remain sluggish.
Projects which fail to meet the buyers requirements are also likely to witness steeper price corrections. For example, some builders based in Sriperumbudur as well as along the ECR are left with a large inventory as numerous projects failed to meet the expectations of the buyer, with respect to prices or features.
