The Gera Newsletter Issue: # April 2010

Dear Friends and Associates,

In the second edition of our newsletter, we look at the various factors that chart the course for the Indian real estate markets. We do hope you find this useful. We would love to hear from you on this and your comments / views, and topic suggestions are welcome.

 

In the event you find this email intrusive, we apologize for the same and request you to unsubscribe so that you do not receive future newsletters.

Incase you have any queries, do feel free to contact me - I would be happy to help you with your real estate matters.


Sincerely,

Sujeet Modak
Business Unit Head - Gera Developments Pvt. Ltd.

Way ahead for Indian Real Estate - Influencing Factors
By Rohit Gera, JMD - Gera Developments Pvt. Ltd.


There are numerous factors that are currently affecting the outlook for the Indian residential real estate markets. While a couple of years ago, almost all indicators pointed upwards, this time around, there are a number of factors pointing upwards, however, there are many jokers in the pack that can spoil the party.  This article explores the factors that are currently impacting the residential real estate markets.


On the positive side, many of the factors that contributed greatly to the downturn in the real estate markets are now no longer present.

- The lack of affordability as a result of runaway price rises by developers has been negated by developers lowering rates as well as concentrating on the affordable segment (or atleast on more affordable than they were back in the heyday).
-  The risk of losing jobs and pay cuts has given way to renewed hiring and pay hikes.  
-  The near 2 year lull may have seen very few people actually buying homes, but this didn't mean that their desire to someday own a home was eliminated. These aspirations are back to the front.
-  The economy shows strong GDP growth and the same looks set to continue into the future.
-  The global markets have started showing signs of recovery.
         
However, the downturn had another effect- very few projects were launched between June 2008 and July 2009.  This means that projects launched prior to June 2008 would come due for possession during 2010 and for the most part, 2011 would not see very many ready homes coming into the market for sale since these would be sold out.  This sellout could lead to price spikes in many markets that could affect affordability again.

 
Other concerns in this current environment are input cost inflation for developers.  The thrust from the government on infrastructure (a welcome move) will see the prices of construction input goods as well as labour skyrocket once again.  This will further lead to an increase in costs and affect affordability of the end customers.
 
In addition, while the central government decides to impose service tax on the sale of flats, state governments like Maharashtra are adding VAT on the sale of flats.  All this will further add to costs payable by the end buyers.

Other unknowns include the risk of interest rates rising as well as high inflation on account of another poor monsoon.  

On balance, while some micromarkets may see price rises, for the most part, affordability ought to keep the price increases to a moderate level- our advice to those considering buying a home is definitely to take the plunge however, with a degree of caution.  It doesn't seem like prices will fall from current levels regardless of the various risk factors and looking at a home purchase as a long term investment makes perfect sense at this time.
 
For the investor, getting into the right micromarket could yield good returns, however this would require substantial research and efforts as this time around, we may not have a rising tide lifting all boats. 
 
Rohit Gera
rohit@gera.in

As with other investments, real estate too carries a certain amount of risk.  Readers are advised to undertake their own due diligence and take judgement calls based on their own research and not on the article.
HOME BUYING TIP

Ask enough questions before appointing a broker to look for a home for you. Just as you looking for a good fit, rest assured that the real estate agent will likely be interviewing you, too. Be wary of agents who don't ask you questions and probe for your motivation. You wouldn't work with just any agent off the street, and good agents are just as selective about their clients, too. And always check for credibility and references. Also enquire about what services he can provide if you are living out of the country.

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