Real Estate market crash 2020 India:
It’s Plain Stupid To Buy A House In India for many reasons few are
- Sales are down in the residential projects all over India. Particularly 3BHK and premium segments.
- Employees in real estate firms are struggling to retain their jobs due to poor cash-flow.
- Bureaucracy and developers have worked hand-in-glove and after Modi government strict action against corrupt, it’s too hard
- There is limited town planning and city councils are largely corrupt. It’s hard to get plan approval in city like Chennai without bribe.
- The parallel economy/ corrupt politicians have invested heavily in real estate and feel the heat now.
Chennai’s real estate market has witness slowdown already . A well know reputed and premium builder in Adyar, LB road has given advt in leading newspaper for a luxury flat @11,799. 10 years before ordinary project by unknown builders was quoted at Rs.15,000/sq.ft. Almost 20% down in 10 years.
Today, An apartment is no longer a viable investment option in Chennai or any other Indian city because they don’t increase in value and are cannot be sold easily. Simple reason: There are simply too many of them! As supply outstrips demand, today flats are actually losing value, or depreciating, like a car. When consumers are lured for choice you can’t expect them to buy an old, second-hand item at the same price as a new one no matter how premium it might be.
Do you think a real-estate buyer will choose brand new flat @ Rs 11,800 or old flat @ Rs.15,000??
Even if price falls to less than Rs.11,800, he may still choose to buy new one…..
The only way to sell it is by quote at price far below the new one i.e. Rs.7000 or Rs.8000!!!!
Apartments No Longer Deliver Return on Investment
During the manic-years, people were confident that apartment-based real estate investments in big Indian cities would hand them around 10-15% returns. But today, with stagnant or declining prices, investors will probably never even recoup their money. After taking into account inflation, interest paid (and lost) on EMIs and down payments, the actual worth of most apartments today are less than what they actually were bought for. To beat inflation and make profits on your investments you will have sell them at prices exceeding their current worth in their past values or Present Value.
Price of 800 sq.ft apartment in 2009 at 15,000/sq.ft rate : 1.2 Crores(20 Lakhs down payment, rest 1 Crore through loan).
EMI on Rs. 100,00,000 at 8.6% for 10 years: Rs.1,24,521
Cost incurred in 10 years: Rs.1.49 Crore as EMI+Rs.20 lakh (down payment)=Rs.1.69 Crore, -24 Lakhs notional rent @20,000/pm for 10 years
Total amount: Rs.1.45 Crore
Actual sale price in 2019: Rs. 94,00,0000(@11,800 per sq.ft cost of new flat
Apparent loss: Rs.55,00,000
Why Did Apartments Lose Value?
“But I know people who sold flats at a profit!”, you will insist. Indeed, they did, once upon a time. This was because they were in short supply then. Around the mid 2000s there was an actual shortage of premium apartments in major Indian cities, fueled by the red-hot IT-jobs-driven consumptive market. Institutional investors started buying up apartments and were soon followed by individuals. Prices skyrocketed. Builders took notice and started launching hundreds of mega-projects. Towers started sprouting out of the landscape everywhere like enormous concrete anthills.
Buyers aren’t foolish and they can see the pile of unsold houses and signs of desperation from sellers. Prices have corrected about 10-20% in most north Indian cities but people are prepared to play the waiting game. The reality is that total costs of properties in metro cities are still way too overpriced. In this game of blink between buyer and seller, the buyer has the upper hand now. Prices may have to correct more. But, a bigger fundamental issue may be that the current generation of younger, salaried people don’t seem to have the same sentimental attachment to owning a home as their parents may have had.
Earlier, a home meant security. Now, a more financially savvy generation has figured out that in a market of inflated prices and relatively low rental yields, it may just be prudent to keep renting, as opposed to owning.
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