Increased Real estate advertisement In India – Paper Waste or sign of industry Revival
Steady
increase in pages in real estate section of all leading newspapers in India, is
this a sign of revival of real estate or last grasp of breath before going
under. Indian Real estate sector has taken a beating from demonetization, RERA
act, GST and most importantly tax changes on second property ownership
Buyers waiting for price and interest rate to
drop. Developers holding on without reducing price waiting for the price to
increase. A cat and mouse game, Only time will tell is the buyer the cat
or the mouse.
Real Estate prices in India are
related to interest rates and credit availability, than the growth
of real income Many
experts have been warning of the ‘bursting of the real estate bubble’ in India
for the last 5-6 years. Select India’s real estate prices have been going up by
an average of 20 to 30% or so per year for more than a decade, while actual
interest rates have been in the range of 8.5%-12%. Because of this, many people
have taken out loans and invested in property, enjoying the 10-15% differential.
However, with prices having increased around 5+ times some areas 10+ since the
turn of the century how long will the 20 to 30% appreciation continue.
Property prices will come down
like a house of cards or stay stagnated or some combination of both sooner or
later because
1. Real
estate are no longer affordable to the vast majority of Indian middle class
households.
2. Not
a viable source of cash flow because of new tax rules,
3. low
rental returns and appreciation Consolidation of the real estate players
Real estate investment as a
cash flow (rental Yield) is a myth Rental yield on a property in Bangalore is 2 to 3% that is
1.5 crore property will fetch a rental income of a round INR 20k to 45K
depending on the locality.
Reduced interest rates has
increased the borrowing power of the buyer but The GST law has proposed to tax sale of
under-construction real estate property at 12%. However, on the total sale
value, in addition to the stamp duty levied around 6% on sale value, the tax
burden is likely to increase to 18%, thereby hugely impacting cost of property.
This has offset any current advantage of buyers borrowing power.
The huge number of unsold units
and the long time taken to sell a property Unsold flats are not a big worry if sales are faster than
the time taken for completing the projects. If the average age of the unsold
inventory is three years while it takes almost five years to complete a project
and hence inventory build-up is not worrisome. Leading indicators suggest that
the we are very close to or crossed the tipping point where
Project
completion time = Average age of unsold real estate inventory
Post RERA Developers holding
cost will go up as
legally pre-launch is not allowed as developer can sell only after all
approvals are in place. The cost of borrowing for land acquisition is upwards
of 20%, and can be as high as 40%. The time lag between the day the developer
buys land to the day the project is launched can extend to more than two years.
Debtors are asking for payment before construction start and in some cases
before the first sale.
- Will the Builders take the hit or will they pass the cost to
buyer?
- Will new innovative land acquisition methods emerge to help
the developers cash flow.
In
conclusion, Real estate advertisement in India, will continue to increase and
lead to more physical and e-waste will it revive the industry only time will
tell.
The opinions expressed in this
article are the author's own and do not reflect the view of any Individual,
organization or political parties.
