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.