Buying a property? Don't wait. Revival is just 2 quarters away

By Om Ahuja

In the closed circles of large investors, we hear that the rally of real estate as an asset started in 2003 when the country’s GDP growth was hovering at 8 percent and inflation was at 5 percent. We also hear that in 2013 the trend reversed, as India’s GDP growth hovered at around 5 percent and inflation reached 10 percent.

In such scenarios, informed investors believe that the price growth of physical assets like commodities and real estate slows down. With high inflation eating into the savings of the common man, available budgets do not encourage the taking of long-term investment calls. The middle income segment, with limited finances, does not find it easy to take exposure to assets like gold and real estate.

Oversupply - Fact And Fiction

Over the last few months, many research and media reports have spoken of excessive real estate supply and slowing demand across many Indian cities. In such an environment, developers roll out discounts and extras that are not part of normal offers. Despite sporadic incidence of such offers in some cities and locations, this trend is by no means a common one; it is limited to developers who are struggling to attract demand. However, market pundits continue to predict that it will catch up across the board very soon.

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[caption id=“attachment_1148283” align=“alignleft” width=“380”]  s long as an area is seeing infrastructure development, it remains a safe investment bet.Reuters image[/caption]

This has created an expectation that in the first few months of 2014 we will see a correction in property prices from developers across markets and projects. The obvious question that comes to the mind of hesitant property buyers is whether they should wait to buy after a price correction, or choose from the best current offers and discounts.

Economy - Here Comes The Sun

With the rupee weakening, export-led sectors in India will do exceedingly well in 2014. The global economy is looking up once again, and sectors like information technology, automobiles, textiles, garments, and diamonds and jewellery will be the early beneficiaries of this trend. Large corporate listed players like TCS, Infosys, Wipro and many other reputed IT companies are hiring more employees and planning to pay better salaries in the next increment cycle. This will lead to improved sentiments - and the stock market is already reflecting this mood.

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More pertinent to real estate is the fact that once the positive sentiment gathers forward momentum, fence-sitters will rush to buy apartments. This will be a key trend to watch, especially in cities that are directly catering to these sectors - specifically Chennai, Bangalore, Hyderabad, Pune and Gurgaon.

Evidently, looking at the macro picture is becoming crucial when it comes to property investments. With export-led sectors set to flourish in the improving economic climate, and further fuelled by the agriculture sector’s revival on the heels of an excellent monsoon in 2013, a pick-up in GDP growth by the 3rd quarter of 2014 is definitely on the table. The multiple measures by central and state governments as well as the RBI to contain inflation will further improve market sentiments.

So far, so good. But what about the real estate supply overhang that has been so generously hyped by the media?

Infrastructure - Not Oversupply - Is Key

Most cities have pockets with excessive supply, as well as pockets wherein supply is severely constrained. Despite concern about economic growth and high inflation, areas with excessive supply will continue to see demand, and therefore price appreciation. As long as an area is seeing infrastructure development, it remains a safe investment bet.

However, areas which are not immediately in line for infrastructure enhancement - such as the far suburbs of Mumbai and many areas in Delhi NCR - are definitely avoidable. Budget-conscious home buyers gravitate towards areas which offer relatively lower real estate prices, but they will understandably not compromise on minimum livability and connectivity standards.

One last question remains unanswered - that of the elusive price correction versus the real, on-ground discounts and offers currently available.

Considering that sentiments are all set to improve on the back of increased corporate earnings and a revitalised capital market, the current sluggishness in property sales can continue for a maximum of two more quarters. This interim period is crucial for property buyers and investors, as the currently available deals and offers will continue for this period. The basis for this prediction is not conjecture, but the visible presence of economic factors that drive growth in the real estate sector. From this point onward, the clock is ticking and the countdown has begun.

Om Ahuja is CEO, Residential Services at real estate consulting and research firm Jones Lang LaSalle India