Are real estate price real?

The real estate prices hit the record levels during the last couple of years. This has brought back to limelight the age-old question whether real estate can also be used as an alternative source of investment or the so-called proverbial bubble will burst. The jump in real estate prices is not peculiar to India alone. In many countries, namely France, Spain, South Africa and more than 50% of States in USA, the real estate prices have appreciated considerably during the last five years or so.

In India, buyers are investing even borrowed funds in real estate, expecting good demand in the near future this has pushed the prices towards northwards. Banks are also providing loans to the intending purchasers by relaxing the prudential investment norms; Buildings constructed at far off places are also attracting purchasers, as cities are expanding both vertically and horizontally. The purchasers are investing money and purchasing flats/houses only to make money, as more and more people are thinking housing as a source investment and not as shelter to protect them from the vagaries of monsoon. Population explosion, disappearance of joint families and migration of people to cities in search of greener pastures are some of the reasons for spurt in real estate prices. The moot question is whether the real estate boom will outpace the equity, as equity investments generally out perform all other avenues of investment.

The pessimists always think that they have to make best use of the situation by disposing of the property when the prices are high; otherwise they have book losses, since the bubble may burst at any time. They always believe that everything that goes up will certainly fall down, unless it goes beyond the speed of gravitation, as per the Newton’s laws of motion, and real estate prices cannot be an exception to the universal rule. The pessimists also believe that they can re-purchase the flats/houses when once the price touches its rock bottom. They always try to draw parallel between the real estate markets and stock markets. The moot question is whether the real estate bubble will burst or the same is not applicable to the peculiar conditions prevailing in Indian real estate markets. But according to the survey by an NGO: All India Consumer Education Society the sale and purchase activity is very slow even in Mumbai there is no buyer at the prevailing price the developers a re giving 15-20 percent discount shows clear indication of fall. According to a leading broker of NCR based at Unique Associates Gurgoan H.K Sharma says the sentiment of real estate market is very very week for the last two months there is no buyer the reasons are many but the main reason is that the sharp increase in land prices and Circe rates the financer are squaring the deal at a discount of around twenty percent.

In a developing country like India, it goes without saying that the real estate prices will not fall just like that, and the prices will always move up and up as population is growing and the development is concentrated in and around cities which are again growth centers. Besides this remittance from NRIs is also finding its route to investment in real estate since returns are high and risk free. In and around small cities the rates of vacant has appreciated more than that of buildings/flats.

According to Dr Devinder Gupta, CMD Century 21 India says, the proverbial bubble in real estate will not burst in Indian real estate markets, as our society and situation is different compared to the west. Hence at least in the near future the prices will appreciate, and deliver good yield.

Article by: Nitin Saxena -