Real Estate Prices: Will the trend continue?
For the past year, the real estate industry has not been on its best behavior. The business has witnessed a dreadful slowdown. Sales have dropped drastically, which has led to an increasingly worrying inventory of unsold flats. The rising real estate prices have proved to be beneficial in the past decade. Till the last year, the value of real estate more than often resulted in appreciation, which had a better value when compared to most financial assets or any other asset classes. However, this is not the case currently. Now, the investors, along with home buyers, are at the receiving end of this heat. The cost of capital is stationed at a height while most metro cities are facing a hike in the property prices.
But that does not seem to be all. Experts believe that the real estate sector has more in store. The statement was especially directed to the residential segment. They expect a deeper correction where residential prices are concerned. Though the stated prices remained high, there was already a drop of around 10%-15% in the transaction prices. The distress sales are becoming a common phenomenon and the secondary market has seen an increase in discounts offered.
There have been studies over a year’s period, which started from the latter part of 2014, where two observations were made. The first was that around 60% to 80% users from the top 7 cities in India expect the property prices to go up by a minimum of 10% per annum in the near future. The other observation was that many people in some of the cities apart from the top 7 expect gains to be somewhere from -5% to 5%. It has also been observed that most home loans usually come with an annual interest of either 10% or more.
This is after considering a large proportion of homes are financed. This brings up an important question: will prices fall at all? Even though there has been a correction, it does not, in any way, mean that the real estate prices will drop down by 30%-40%. This scenario is only possible under recession, but the economy has improved as the GDP is gradually growing. The inflation is also low as international companies have started to invest in manufacturing and e-commerce businesses.
A slow rise is basically a correction in real terms. This is also applicable to other major markets. According to the experts, the prices are either expected to remain flat or there might be a marginal growth in the next year....