In 2014-15, nearly 1.15 lakh less inventories were sold compared to the previous year. The sharpest drop was seen in Gurgaon at 57%. The mismatch between prices and affordability were stark in areas like Gurgaon and Noida. These places also boasted extremely high interest rates, one more reason for the poor sales.
The lack of liquidity led buyers to invest in other liquid assets like debt mutual funds and equities. This led to further drop in real estate markets, which came as a surprise, given the fact that real estate assets are most highly cherished.
Plus prices went up despite the poor performance of the economy. Then came the turnover. Prices reduced and the Reserve Bank of India increased the gross bank credit from 17.4% to 20% within the span of one year. The government made amends to increase transparency and accountability in this sector.
The real estate market is currently in the phase of the Bear market. Though such a term has been described for stock markets, they also apply to real estate, commodities and currency.
Unsold inventory
The unsold inventories in major cities of India are on all time high with a gap between demand and supply. Even though service tax and cost of construction went up, there was no rise in prices as development and infrastructure loses money and credibility when it lies unsold. This stagnant growth compelled builders and developers to drop their prices. Sales fell beyond 34% between 2014 and 2015. Launches increased with better facilities and affordable prices to tap into the greater demand in the affordable housing segment. Many other factors have transpired together to make real estate a buyer’s market giving the upper hand to the buyer.
Advantages for a buyer in a buyer’s market…
- Unsold inventories mean dropping prices and in cases, where prices do not drop as such, the buyer’s negotiation power increases.
- The buyer has options now. The buyer needs to be confident enough to walk away from a deal that doesn’t suit his purchasing power, his needs or gives him value for money.
- Keep in mind the ultimate power lies with him. He is the one dictating prices.
- A buyer’s market tests their skills of observation and bargaining. If a particular property on the market has undergone several price reductions, deduce the obvious: the seller wants it sold. Buyer can ask for better furnishings along with discounts.
- To avoid confusion, focus on reputed developers and eliminate smaller players from the field. This will help narrow down the price range and select the most suitable options. It will help mitigate risks related to unfinished projects or developers closing shop without delivery.
- Go in for projects which will get completed within the next 12-18 months. The buyer has to maintain due diligence in terms of project’s market response, value propositions and inventories sold as these ensure timely delivery of the project. We suggest buyers go in for projects providing established housing corridors, where social and physical infrastructure are in proper place.
There are, however, some consequences of investing in a declining market.
- Chances of losses are greater as prices are continually losing value.
- There are no short-term profits. Global recession means that people looking for exiting with solid gains within the next three or four years are stuck. Hence, investors should look to invest in quality projects.
An in-depth understanding of long-term market trends can help to decide and pick out the best real estate project for investment. But on the whole, this seems like a good time to invest. The 7 lakh unsold inventories across major cities of India are on the lookout for buyers. Developers need buyers to complete their unfinished projects. The prices are in no hurry to go up. It’ll take at least 3-4 years to clear existing inventories and match supply and demand. Buyers are likely to get good deals due to low demand. Even if demand increases, prices may not go up, as developers will wait for some time. So, invest now in the right kind of property to acquire good gains later.