Real Estate: Understanding the Bull and Bear runs
Nov 23, 2013
Source : The Times of India


DELHI: My partner and I are invariably asked questions like: “Do you think the property prices will go up?” or “Do you think Mumbai is a good city to buy property or should we rather consider Bangalore?”

I wish I could gaze in to a crystal ball and come up with the answers. Alas, real estate is an asset class and has to be understood in the bigger context of the overall economy — local, country and global. The Indian real estate cycles can be very closely linked to the Indian stock market which in turn is closely linked to the global stock indices.

The boom period in the real estate market was from 1990 to 1996. This was also the period of the stock market boom, both globally and in India. The crash started from 1996 and bottomed out by 1999. This was also the time of the great stock market crash globally, led by the Asian crash of 1997.

The price rise from 1990 to 1996 was at a CAGR of 3 per cent, while the prices dropped by 60 per cent, between 1996 and 1999. From 2000 till 2004, there was a very minimal increase in prices year on year. The big spike was from 2004 to 2005 and thereafter the high octane rise till early 2008. The global stock market crashed in Sep 2008, and with it came down the Indian stock market which in turn brought the real estate market down too.

So what is going to happen in this sector for the next 2-3 years?

Let’s forget the stats of millions of houses shortage, the ever increasing middle class, etc. Does it look like the rates will increase, like they did between 2004 and 2008? Do the macro factors both in India and the world suggest an increase? Our reading is that the rates will go down a little more and stabilise by mid 2014. Thereafter, it will be a period of marginal increase, just like the period between 2000 and 2003.

The big boom should once again start from late 2017, early 2018, similar to the one experienced between 2004 and 2008. So, if you are a long term investor or an end consumer, looking for a house to stay then you should hunt for the right bargains. Close to 60 per cent of genuine property buyers would like to buy a property between Rs 20 lakh to Rs 60 lakh. Yet, none of the major developers build anything in this price point. This creates the pent up demand resulting in supply side shortage.

We have also observed that just over 30 per cent of property buyers are employed with the IT sector. This has been a huge reason for the Bangalore property prices rising steadily. Property developers, investors and end consumers can only ignore data at their peril, but, the ones who have made handsome returns in this sector, have always sought and acted on sound data.

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