REAL ESTATE: REASONS FOR SLUMP

AND THE WAY FORWARD

 Introduction

• The term ‘Real Estate’ is defined as land, including the air above it and the ground below it,
and any buildings or structures on it.
• The activities of the real estate sector encompass housing and construction sectors as well.
• The real estate sector is a major employment driver, being the second largest employer next
to agriculture.
• It has impacted other key industries- retail, hospitality, entertainment, and economic
services.
Historical trend of investment opportunities
in real estate
 Why Real Estate hit the slump
Unattractive return on investment
• Currently, investors are not getting more than 2-3% return on investment (ROI) even in
cities where the real estate industry is doing comparatively better.
Economic slowdown
• The current economic slowdown has created a crisis in the job market, which has made it
harder to find a new job. Hence, people are preferring to hold on to their savings instead of
investing them in real estate.
Under-construction plots are failing to inspire faith
• Investors are scared to put their money into projects that might take a lot of time to be
completed. This has resulted in even more delays in the completion of said projects as
builders are falling short of funds.
People are waiting for the price to drop
• People do not want to put their money into a property that they believe might lose its
value in a few years. Hence, people are waiting until property prices become more
reasonable so they can get an affordable home loan.
Low loan-to-value (LTV) ratio
• New home buyers now have to pay 30% of the property value from their own pockets.
This is one key reason as to why people are now showing less interest in buying homes.
Other investment options
• With the slump in the real estate market, people are now considering newer investment
avenues such as mutual funds. They have also started to invest in start-ups as they can
generate higher returns.
 Report said that Mumbai, Bengaluru, and the National Capital Region (NCR) saw highest
home sales in the third quarter of 2022.

CURRENT Home sales in India’s eight major residential markets grew by 40 per cent to 232,396 units
in the first nine month of 2022, compared to 163,426 units in the same period a year ago
STATE:
India’s Major Mumbai, Bengaluru, and the National Capital Region (NCR) saw highest home sales in the
Housing Markets third quarter of 2022 , grew at an annual rate of 15% to 73,691 units across the top eight
cities in the third quarter (Q3) of 2022 from 64,010 units

See 40% Growth

In First Nine Mumbai’s home sales of 21,450 units accounted for 29 per cent of the total sales across the
top eight markets. Bengaluru sold 13,013 units in Q3, 2022, logging the second-largest sale
volume. The Delhi NCR sold 11,014 units during the period.
Months Of 2022:
Report Basically, tight liquidity conditions along with the repo rate hike
would lead to a significant rise in the cost of funding, impacting home
loan rates as well. Going by the current trends we expect about 50
percent of this will be passed onto the home loan borrowers.
 Real Estate Market Growth YOY of FY2022 
On a pan-India basis, this year, property prices in India are likely to increase by 7.5%, the fastest
growth in five years.

According to a poll, next year and in 2024, average house prices would forecast to rise by 6 per cent.

Polls also predict that prices in Delhi and Mumbai, along with its surrounding National Capital Region,
would probably rise between 4 percent and 5 percent this year and in the upcoming year.

In the course of the upcoming two years, the prices of Chennai and Bengaluru are also expected to rise
5.5 – 6.5 per cent.
 Why is it good for people to invest now
• Real estate is a Hedge against Inflation: It is very difficult to foresee the economic condition and ROI of
stocks or mutual funds after several years, real estate offers the security of investment and income
growth.
• Steady source of income: Real estate investment can provide a second of reliable passive income in the
form of rentals which increases over time.
• Adds stability to the portfolio: Real estate can help diversify your portfolio. In general, real estate has a
low correlation with other major asset classes—so when stocks are down, real estate is often up.
• Leverage at a very low risk/ high returns in the longer run: This is generally focused on large intrinsic
value appreciation over a long period. This offers alternatives to complement long-term goals, such as
retirement.
• Tax benefits on property purchase: The Income Tax Act allows for exemptions for investing in a property,
which results in the effective tax being significantly lower and also helps build an asset, simultaneously.
 Conclusion
• The buyers and developers are experiencing a wait-and-observe stand-off. Both have a hope
that the other will be relenting. The sustainability of the stand-off will be seen over time.
Home sales rose 71% year-on-year, with 237,000 units sold in 2021, thus reaching 90% of pre-
Covid 2019 levels. The real estate sector in India is expected to reach US$ 1 trillion in market
size by 2030, up from US$ 200 billion in 2021.

• With more business activities or transactions, retail growth will be accelerated. This will cause a
sudden spike in retail space demands like malls, stores, etc. Huge institutional investments will
be stimulating the commercial real estate sector’s growth in the near future.