Unrestrained speculative buying can kill the market
This speculative behaviour is similar to the trend followed by middle class Americans pre-2008
Jun 25, 2013
Source : The Times of India

 

MUMBAI: With the Mumbai real estate re-sale market touching hitherto unseen heights, questions about how sustainable the real estate bubble is are being raised more so now than ever.

In the last couple of years investing in property has been the surest bang-for-the-buck for Mumbaikars. On an average property prices have more than doubled and re-sale of property has been a mode of quick profit for several investors. Thus, heralding the rise of professional real estate investors whose numbers have increased with time. And this according to industry observers is not a very positive trend.

“The professional investor typically invests in property at the pre-launch or under-construction period, only to sell it at a later date. But to make a sale he needs to price it below the one quoted by the developer. And this is where the problem begins,’’ observes Jayin Patel, Proprietor, JP Real Estate Agents and Developers. “Speculative buying beyond a certain limit will kill the market. It is like cutting the branch you are sitting on.’’

With increase in the number of investors, about 60 per cent of a project is booked by this segment. Any further increase by this segment is likely to have a big impact on the market.

“This speculative behaviour is similar to the trend followed by middle class Americans pre-2008. And then came the crash! On a similar line though not so drastically, the Mumbai market too can witness a correction, if the increase in speculative buying is not stemmed,’’ observes a well known developer, who did not wish to be named.

There are already increasing signs that the dream run enjoyed by the real estate segment in the past few years may be slowing down. Developers off the record talked about slowing down of direct sales to the end user, and the rise in inventory.

But while the going is good, everybody is happy booking profits and market observers predict a smooth sail for some more time.

The factor working in Mumbai’s favour is the extensive infrastructure development projects and the consequent improved connectivity like the Monorail, Seawood-Uran suburban rail network and the Eastern Freeway Project. Will this key factor be able to hold up the real estate industry is yet to be seen.

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