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
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.
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
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.
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.
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
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.
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.