Why Indian real estate market will bottom out in 2021
Demand forecasting is a complex exercise when it comes to real estate as homes are bought for consumption, investment and at times investment-cum-consumption. However, a broad-based analysis can definitely help chart out a trend.
Demand forecasting in real estate has always been a puzzle for economists. Economics suggests consumption products like iPhone, cars, mobile data, have a falling demand curve which means as price falls their consumption increases.
For investment products like equities, as prices fall, trading volumes normally come down indicating lowered demand. However, when it comes to real estate, demand forecasting becomes a complex exercise, some buy homes for consumption, some for investment and there are others who look at homes for investment-cum-consumption. Therefore, demand forecasting has always remained a puzzle. However, a broad-based analysis can definitely throw a good amount of light on the expected trend.
A. 30-year empirical evidence
A 30-year period is generally considered to be a large period to analyse long term trends. Since 1990, there have been three bull runs and three slowdowns in the property market. Interestingly, all of these have been driven by big-ticket events.
In 1992, the government eased norms for the flow of NRI money into Indian real estate. This big decision led to the first bull-run in 1993 that lasted till the emerging market crisis of 1995. During ’93-95, many NRIs had their first taste of buying a property in India. Navi Mumbai was the biggest beneficiary of this bull-run.
B. City-specific analysis
While the real estate market in every Indian city has its own character but most large cities have followed the Mumbai market. Since Mumbai remains the largest real estate market, it will continue to determine trends across India. Most local indicators in Mumbai now confirm the impending bottoming out of Mumbai market.
- Reducing gaps between incomes and EMIs
- Steady demand and reducing supply
- Increasing cost for developers
- Reducing gaps between Rental yield and bank FD rates
With most of the deflationary factors having fizzled out, the consumption-driven buyers are using the current opportunity to buy the largest possible apartment their incomes can justify. At the same time, the investment-driven customers are waiting for the inventory to deplete further. However, given the easy global money and reduced supply, the wait for the bottom is unlikely to go beyond 2021.
Source: MoneyControl (http://bit.ly/38pMGiZ)