The real(ty) dilemma...

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The Indian realty market has seen its worst in the year gone by, but people are still hopeful of further price fall and confused about when is the right time to invest

Preeti Chinoy, a young corporate working with a Gurgaon-based MNC is facing a tough time deciding on the ideal timing of making the biggest purchase of her life – her dream home. “I have been looking at purchasing a house for myself for around six months now, but the unstable real estate prices are standing as a roadblock,” she said. Well, Preeti is not the only one, there are many like her who are delaying their purchasing decisions for a long time now, anticipating a further fall in the realty prices. On the other hand, realtors are still holding on to their profit margin denying prospects of a sharp fall in prices. However, there’s a silver lining in this dark cloud as things have changed drastically in the past two months. While some real estate developers have announced massive price reductions at one end, banks on the other end have been aggressive on cutting the loan rates. Well, this isn’t all that the Indian realty arena has witnessed so far; a situation of distress selling too has surfaced. And this has made it all the more imperative to know when one can invest in the real estate market to finally prove it a wise investment. Louis Armstrong, CEO, RICS states, “I think the first half of 2009 will be difficult for the realtors as there will be further tightening, but the sector will finally stabilise by the second half of 2009.” That means waiting for a little while more may actually turn out to be the perfect decision.

Recent price cuts have given a hint that developers are now accepting the fact that the boom witnessed in the last five years was more artificial than real and hence are now reducing their prices. But industry insiders believe that all the big names in the realty arena are still playing on a healthy margin of 25-30%. So keeping in mind the fall in demand, one can expect more fall in the prices. On the contrary, few of the players are expecting a rise in demand soon. Pradeep Jain, Chairman, Parsvnath Developers Ltd. avers, “Interest rate cut should prompt those who were delaying decisions for sometime.”

However, expressing a different view about the buying decision Anuj Puri, Country Head, Jones Lang LaSalle Meghraj says, “If one needs a home for actual self use and has found an affordable option, one must take the plunge now. While it is understandable that buyers wish to wait for prices to fall, there is a definite danger in waiting too long for the perfect opportunity.” Puri firmly believes that much as in the stock market, it is impossible to predict the point of lowest ebb in the real estate market. However, keeping in mind the scenario of the realty sector, consumers still prefer to wait for a little more time.

Taking cue from analysts it seems to be an ideal time for those who want to invest in real estate for personal use, but if someone is looking at it from an investment point of view, he must spend some more time playing the wait and watch game. But that too needs to be done very cautiously, as the future of projects under construction at the moment is uncertain. They may get delayed or even scrapped if some developers fail to arrange the desired funding in time. Thus, the safest option is to opt for either completed projects or projects that are near completion. There’s definitely a high risk investing in properties, which need more than three months of completion time.

Pawan Chabra

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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