For property buyers who have been on the sidelines for quite some time now, recent developments are sure to pique their interest. Indeed, an article on Firstpost has highlighted how some correction in property prices has finally become a reality in various cities across the country. The correction has been more pronounced in markets which have been speculation driven. The trend is hardly surprising. Property prices over the past several years had risen way above fundamentals. The unholy nexus between politicians and builders as well as the overall murkiness in the sector on account of poor disclosures and corruption meant that prices were always kept artificially high. They never reflected the ground reality. This disconnect became all the more pronounced in the recent economic slowdown. Demand for houses simply dried up although there has been ample supply. Debt on the books of real estate players ballooned. And bankers became wary of lending to the sector on concerns of default rates rising. Therefore, the only solution was for prices to finally come down to acceptable levels. To cite some examples, the article points out that in highly speculative markets such as Noida and Ludhiana there has been a paucity of genuine buyers and investors are looking to exit various projects. Then there is the large inventory of unsold homes. For instance, Mumbai saw the maximum inventory of unsold homes. It had 48 months of unsold inventory during the first quarter of FY14. For NCR, the inventory has more than doubled to 31 months in the first quarter of FY14. An ideal scenario implies inventory should be in the range of eight to 10 months. This means that unless prices come down, it will be ages before these homes are finally sold. So far the correction has been in the range of 10-20%. The question is: Is this enough? Or is there scope for more correction? We believe that since prices were so unsustainable in the first place, logic suggests that one should expect more of such correction to happen. It is just a matter of when.
Posted on: Tue, 03 Sep 2013 11:28:58 +0000
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