Has the residential real estate market bottomed out? This is the question frequently being asked these days. I am absolutely certain that this is so. How am I so sure? Look at a market like Mumbai. Developers in the city have seen a sharp pick-up in volumes—around 8,000 tenements have been sold in the past 60 days alone. In fact, we too have seen an increase in sales.
With an obvious rise in demand, I can say for sure that the bottoming out is complete now and the depression is over. If you consider the price points since January 2008, you will see that in the early part of the year these are at least 30-35% lower. At these levels there is a consistent demand uptake, which means that the prices are more likely to move up.
In the affordable housing category, the resurgence in demand is much higher because, in the past, developers were not supplying as many apartments in this price segment. Apart from this, we have seen a pick-up in sales in the higher price brackets as well. However, this increase might not be as much as we had seen more than a year ago.
If you look at the market today, the good news is flowing in from all related segments, especially in funding—both for consumers and developers. Home loans have now been given a priority, with the lead taken by SBI, when it brought interest rates down to 8% at least for one year and 9% for the next two years. The public sector bank has also made a shift in terms of end-user loans.
Another important move in the funding segment is that the RBI has already relaxed the credit policy in terms of developers’ loans. Besides, the companies that had gone through a difficult period have been allowed to reset these loans. As funds are going to be made available to developers and home buyers, the situation is going to get better.
As far as investing in real estate is concerned, the period between September and December is possibly the best time to invest in residential real estate. While the increase in prices may be much slower compared to that during the boom, I am sure the prices are not going to fall further. The festival season (starting now and extending to January) is likely to see an increase in sales. People who would ideally like to shift between March and May (coinciding with the start of the new academic year for their children) generally look for properties and home loans during this period.
As far as the commercial deals are concerned, these are way below the residential ones. This is partly because the international markets (real estate and otherwise) have not recovered fully. On the retail front, I think there is still a problem as strong buying has not picked up despite a drop in prices. I think retail prices should stabilise in sixnine months.
But, at the end of the day, we also need to remember that the supply of commercial space and retail space is suddenly drying up. This is one more trigger for rates to go up. In fact, the prices of retail space can rise by the end of next year in areas where there is no overcapacity. With increasing rates and a steady demand, there’s no doubt that the worst for the property market is over and the only way to go is up.
Niranjan Hiranandani is MD, Hiranandani Developers
