Will the Real Estate Bubble Burst due to Falling Sales & Rising Inventories?

 

Bhiwadi - 26th Aug 2015

Your dreams of owning a house could come true if the nightmare of the real estate sector continues for a few more quarters. The realty industry is facing a terrible slowdown, with sales down drastically and the inventory of unsold flats piling up. Even investors in property are facing the heat: property prices in most metros have risen at a tardy pace in the past one year while the cost of capital remains high. The Magic Bricks National Property Index, which is the weighted average of supply of real estate and property prices across 11 cities, has registered annualised growth of a mere 1.7% since January 2013 (see graphic).

slowdown in supply

Experts feel there is more pain in store for the real estate sector, especially the residential segment. Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital, foresees a deeper correction in residential prices (see interview). "While stated prices remain elevated, transaction prices have already fallen by 10-15%. Discounts have increased significantly in the secondary market and distress sales are becoming increasingly common," says a recent Ambit Capital report on the sector.

Will prices fall?

However, a correction does not mean that real estate prices will come down by 30-40%. "A 30-40% crash can happen only when the economy goes into a recession. Our economy is doing well now, the GDP is growing at a good pace, inflation is down and foreigners are investing in both manufacturing and e-com businesses," says Sanjay Dutt, EMD-South Asia, Cushman & Wakefield.

But even a slow rise is actually a correction in real terms. In major markets like the National Capital Region, property prices have risen 1% in the past one year. Due to the oversupply, the prices are expected to remain flat or register a marginal growth in the next 12 months.

"Apartments that are unaffordable right now might witness demand when the disposable incomes increase in the next 2-3 years. Till then, the residential real estate segment will continue to see time correction," says Sharad Mittal, Director & Head-Real Estate Investment, Motilal OswalBSE 0.07 % Real Estate.

Waiting and watching

Investors and end users are also in a wait and watch mode following news reports of a massive unsold inventory in the system. Buyers are postponing their decisions, leading to a huge supply overhang. Though the industry used to put up a brave face earlier, the situation has become precarious now. "Something has to give in, it can't continue like this," says Agarwala of PropTiger.com. "The real estate industry has started taking corrective steps but things will get worse before they get better," says Dutt. He says it may take two more years to stabilise, with the green shoots becoming visible after a year.

DELHI NCR: TOO FEW BUYERS

DELHI-NCR: suffered due to inventory overhang. Lack of sales and stagnant prices kept investors away. Since there is already correction to the tune of 20% in pockets, prices are not expected to fall further in near future. However, launches from builders and secondary market transactions are still happening at rates below the brochure and asking price. Investors should stay away till stability returns.

sale graph delhi

 

Free Site Visit
Call : 995 300 6250

Book Now!!!  Krish City in Bhiwadi
Ready to Move 3 BHK Residential flats.

Hot Properties

Hot Properties Hide