In the closed circles of large investors, we hear that that the rally of real estate as an asset started in 2003 when country’s GDP growth was hovering at 8 per cent and inflation was at 5 per cent. We also hear that in 2013, the trend reversed as India's GDP growth hovered at around 5 per cent and inflation reached 10 per cent.
In such a scenario, investors believe that the growth of assets like commodities and real estate slows down. With high inflation eating into the savings of the common man, budgets don’t encourage the taking of long-term investment calls. The middle income segment’s limited finances prohibit exposure to gold and real estate.
As a result, over the last few months, many research and media reports have spoken of excessive real estate supply and slowing demand across many Indian cities. It is in this environment that developers have rolled out discounts and freebies.
There is also an expectation that the first few months of 2014 will see a correction in property prices from developers across markets and projects. The obvious question that comes to the mind of property buyers is whether they should delay their purchase decisions to benefit from a price correction, or make the best of the current offers and discounts.
With the rupee weakening, it seems as if the exports-led sectors in India will do well in 2014. The global economy is looking up again. Sectors such as information technology, automobiles, textiles, garments, diamonds and jewellery are likely to be early beneficiaries. The stock market is already reflecting the positive mood.
Once the positive sentiment gathers momentum, investors will rush to buy apartments. This will be a key trend to watch, especially in cities such as Chennai, Bangalore, Hyderabad, Pune and Gurgaon.
Most cities have pockets with excessive supply and pockets where supply is severely constrained. Areas with excessive supply will continue to see demand and, therefore, price appreciation. The clue is that as long as an area sees infrastructure development, it remains a safe investment bet.
However, areas that are lagging behind in infrastructure, such as the far suburbs of Mumbai, many areas of Delhi NCR or the far-flung suburbs of Chennai, are definitely avoidable.
Budget-conscious home buyers gravitate towards areas that offer relatively lower real estate prices but will understandably not compromise on minimum liveable and connectivity standards.
The sluggishness in property sales looks likely to continue for a maximum of two more quarters. The interim period is crucial for property buyers and investors, as deals and offers will continue.
The writer is CEO, Residential Services, Jones Lang LaSalle India
