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Real Estate Investing: Triumph of Hope over Experience

The investors relationship keeps varying with the assets. While the era of 90's was the period for the stock market and they still are the favourite of a lot of investors; real estate is the next investment that experienced investors love to do. Real Estate attracts a lot of people as it is not only seen as a tangible asset, but also an asset that gives long-term returns. The investors are embracing a ‘new era’ of innovation which is expected to astonishingly resolve the operational disorders to growth that we now face. The year 2016 was not a very good period for real estate investors, and no one can predict what’s in store for them in 2017.

The demonetisation move has impact on a lot of sectors, but real estate was hit the most. The sector which ran majorly on the cash component had the worst time as even today, the ground situation has not changed much. The Indian customer is still struggling with the wait-and watch mode. Keeping the investors aside, the real buyer who puts his hard-earned money to buy his house (which may be his first own house) is sceptical thinking that the prices may further go down!

While everyone is fearful of investing in Real Estate, the experts have shared that even they are unaware of where the new regulations and equilibrium will take the Real Estate market. The prices are not expected to go high for at-least 2-3 years and the sales volumes are also quite low. While the reasons are numerous, one reason for the low sales is the high prices because of which the actual buyer are not being able to afford real estate. At the same time, thanks to demonetisation, the land prices have seen a correction. With the land prices seeing a correction, they are expected to come down in the coming 8-10 months, which means that the prices of products that will be launched will also come down. While this is a happy state for the buyers waiting for real and affordable prices to make investments, Real Estate developers fear that these new launches at lower rates will put pressure of existing unsold inventory on them.  The huge number of unsold inventory has always been a stressing factor for the real estate sector of any nation.

The residential real estate has already been split into affordable and luxury segment. The high-end luxury segment is already seeing a pressure and it expected to have a correction of somewhere between 25-30%, while the experts are also expecting small corrections in the affordable housing segment. To add to it, the pricing of the residential real estate varies from city to city. While the interest rates are the same, its impact is different. With cities that are majorly occupied by investors i.e. people who are not dependent on home loans for buying a property; even a fall in the interest rate may not really push the demand. On the other hand, cities where home loans play a major role, any change in the interest rates has a great impact.  

Another factor that plays a major role is the possession of the property.  Today, majority of customers are looking for options which are ‘ready to move in’. The delay in the possession has been a black mark in the history of Real Estate, due to which people are fearful of real estate investments. The builders are ready to negotiate and even offer discounts for properties that are under-construction, still the buyers are very less. Moreover, with all the latest projects and properties coming in ‘ready-to-move-in format, no one really wants to wait for a period of 3-5 years to own a home. 

Thus, though overall sentiments are largely resorting to wait and watch strategy the builders are trying their best to lure and keep customers. Price guarantee, rental assurance, subvention, buyback schemes, etc. are all put into place to bring back th customer confidence in the sector.

 

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