Buying a house in all likelihood will be the biggest purchase of your life. But don’t give up because India with its cultures and traditions has a lot more to give us.
The common economic logic says, ‘other things remaining the same if the sales are not happening and inventories are piling up, the prices should fall’. Other things such as income, tastes, and preferences don’t usually change in the short run. Thus, slowing demand should lead to a fall in the prices. However, that’s not happening in India’s realty market.
Why?
The simple reason is both the demand for and the supply of real estate especially residential real estate is being manipulated by stakes.
How is the Manipulation done?
Given the estimated shortage of 20-25 million residential units in the country and a rapidly growing economy, there will always be a growing demand for accommodation. If supply doesn’t match, it will lead to a rapid increase in the home prices. In India, that has been happening for quite some time.
That in turn, has made property prices unaffordable to even the upper-middle-class households as reflected by high ‘home price/income’ ratios. That explains buyers’ disinterest and overall lower demand for properties at current prices. That should ideally lead to a fall in India’s housing prices but that’s not happening or happening at a slower rate than it should.
Why is the manipulation done?
Because stakes ensure that, the supply of homes lags behind demand for homes i.e. supply of homes increases at a slower rate than its demand so that even at lower demand, the home prices need not fall much. In other words, India’s realty market is rigged.
Real estate may be down in the dumps right now. Even so, compared with most other big businesses, real estate remains one of the best to put your money into. ERA or Real Estate (Regulation and Development) Act, 2016 aims at protecting the home purchasers and boosts the real estate investments. The central and state governments are liable to notify the rules under the act within a statutory period of six months.
Mumbai – for one, real estate has been the coolest way to generate and park slush funds for political parties. Much of the surging value of real estate springs from picking obscure land on the cheap and watching the location turn into gold after everyone else realizes it’s right next to a Metro station. In the short-term, RERA is bringing more pain than joy just as a major surgery does until convalescence and a journey to full recovery. The pain is being felt mainly by home buyers whose projects fall into default, as their borderline builders are unable to cope with the stringent conditions of the Real Estate act. In China, real estate accounts for 14% of the country’s GDP and India will follow that pattern in a market well regulated by RERA as real estate in India will reflect its true place in the country’s economy. Real estate accounts for about 7% of India’s gross domestic product (GDP) which is now at about $2.5 trillion, which means the sector creates $180 billion in wealth annually. RERA is a rare win for all concerned.
By most counts, there was a flood of investment capital into India between the years 2005 and 2008. Close to $25 billion was invested into real estate in the Indian markets in various forms. On top of these complicated investment structures, most of which were unenforceable and, in some cases, plain and simple illegal, one had to deal with the lofty expectations of the Indian promoter or developer.
Residential Real estate prices fell across the country in 2017 due to demonetization, the implementation of RERA and GST. According to reports, prices fell by an average of 3% across the country. With Pune witnessing, the highest deadline I.e. 7% and Mumbai with 5%.
In conclusion, RERA is a win for all concerned. Good for the investors and end consumers because it will clear away the clutter of small robbers. These plans are mooted much ahead of the actual execution.
