Why real estate prices are not falling, as yet?

rental yields

The global pandemic has brought the real estate industry to a grinding halt. All activities related to construction have stopped in all the major cities and there is little or no clarity on when normalcy will set in. Yet there is a strange phenomenon – real estate prices are not dropping? In fact, this was the first expectation from buyers across the nation that the current situation will cause prices to fall. But the rigid real estate market is not moving.

For a couple of years now home sales have slowed down and inventories of completed projects has increased. In late 2019, a slow revival was showing a changing interest from buyers and slow sectors like Noida, Gurgaon, started picking up pace. But logically slowing demand should cause a fall in prices but the artificially controlled real estate market is ensuring that there is no dip in prices. This gives the impression that India’s reality market is rigged.

While a few luxury properties have seen a dip in prices this is not true for mid-range and low-income housing. Ready to move in homes have seen dips to a maximum of 8% in the NCR region but that is not in the case of all housing ranges. Inventories are being put on hold by the developers in the hope to sell them off at the high prices when the situation eases. This game of holding and releasing fewer stocks into the market is helping them hold on to prices. The developers did not take too well when they were told to open up inventories and release apartments to ensure more people can buy at lower rates. Instead they have chosen to anticipate future demand and keep their inventories on hold.

The customers have also slowed down the decision-making process to purchase an apartment. They are putting off decisions as there is a lot of uncertainly in terms of their own ability to handle a loan or take on the extra burden of purchasing their homes.

However, there are a quite a few reasons why we feel the prices wouldn’t come down, or atleast significantly move south

  1. Developers who have a good brand reputation and deep pockets are willing to play the holding game. Real Estate Market was seeing buyers coming back in last 6 months and most developers feel that once pandemic is controlled or people find peace with the new normal, the serious buyers will start to come back
  2. Work from home driving more focus on residential – Developers in urban markets like Bengaluru, Pune etc are sensing more work from home culture which will lead to requirements of either more space or moving away from the city as they dont have to deal with daily traffic while going to office. In both the cases, developers believe that will help them push inventory and we have already seen some new launches in outskirts of Bengaluru and now Pune which are getting more traction
  3. Commercial Real Estate to take a hit – This will drive investors who are comfortable with real estate to start looking at residential asset as a steady return
  4. Home loan rates at an all time low – For people who are economically confident of their health this turns out to be the best time to buy as they can save significant amount on the interest rates.

About Manik Kinra

Trying to build something awesome @ Pin Click #realestate. Earlier, created a large & 1st in India #crowdsourced design community @ Jade Magnet.

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