Where is the real estate market headed?

In the past year Bengaluru and Pune have shown a marked increase in real estate activity. Mumbai the erstwhile leader in the real estate market has slipped down from the top slot. Even the National Capital Region wasn’t able to drive its real estate in a positive direction and they have seen nearly a 30% dip in demand.

Every big metro is facing the constant problem of over-supply of both housing and commercial space. With financial guru’s advising people against purchasing homes, the market has taken a further beating. The high cost of construction has sky rocketed the prices and the dull IT market has taken away most of the top home buyers that fueled the growth of the industry in the past few years. Commercial property has seen lower rentals and more unoccupied floor space in the last six months and this reduced demand is starting to take its toll on the major real estate players.

It is popularly said that a real estate company can shine in the real estate market for a maximum of 10 years, behind and after this period tend to be struggle. Several known real estate companies have shut shop across the country or have slowed down their constructions. Large scale project of over 500 residential units are finding it difficult to complete their projects due to lack of buyers and funds from the market. Banks have become stricter in terms of lending to builders and this is causing a delay in the project. Many projects are only sold up to 50% even after completion and they are still struggling to find buyers.

A few creative builders have resorted to giving out apartments on long term rentals to firms and individuals. This at least sets in a cash flow into the company and helps them stay afloat till the apartments can be sold. The long term rentals are a good option for companies bringing in expatriate workers and many have chosen this mode of accommodation against using hotels or service apartments. Companies have leased apartments that are used by visitors and travelling executives and this has been more economical hence the trend is catching on fast.

Even with dull buyer market the land prices have not seen any dip. Land within city limits still commands a premium pricing and there is nearly a 10% growth in the land prices over last year. Increasing land prices are making it difficult for sellers and buyers to proceed and hence resulted in a slowdown in land purchases by corporates and individuals.

The next six months will dependent on the tide the economy takes, if the markets turn around and manage to stay positive then real estate definitely has a good chance of recovery but if not then real estate across many metros will head for a recession again by next year.

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