Real Estate has always been the favorite option for investors in India. During 2005, Government liberalized its FDI policy for the Real Estate sector. Due to this, foreign investors got a chance to bet on Indian Real Estate Market. There was a sudden surge in Real Estate prices. Big players saw an opportunity to earn money in this era. Real Estate became the first choice of Investment for many. During 2008, Stock Market started to fall and this gave a further boost to Real Estate Investment. Again during 2010 Value of Real Estate properties started to grow at a tremendous pace. It became harder for the common man to buy his dream house. But the real culprit is not FDI Policy or fall of the stock market or big players.
The Real Culprits are Growing Population and Nuclear Families
There is the basic law of Economics and that’s called Law of DEMAND & SUPPLY. If there is no demand, there is unlikely any price hike. Due to Modernization Indian families started to split out and its custom of Joint Family or Hindu Undivided Family started to fade away.
Nuclear Family is the trend. Where newly married couples are willing to get out of their parent’s house and build their own nest. This gave rise to demand in Real Estate. I remember in the early ’90s this nuclear family trend was triggered. Many couples started to move out of the Joint Family. Now in Metro cities like Mumbai, Bangalore, Chennai, etc., people are splitting away from their parents and living in separate houses.
So the primary reason is the growing Indian population with more nuclear families which is going to keep the demand intact. The current market phase will go on and may last till 2023-24.
Liquidity CRUNCH and RERA
Post demonetization Real Estate market witnessed a slowdown. All cash transactions were stopped during demonetization and after-effects were even worse. Liquidity in the market was absorbed. People had to manage loan installments and the real estate market could not see any sign of improvement.
The government notified RERA which removed the unorganized and petty players in the construction and real estate field. They are still suffering from DEMONETIZATION AND RERA. RERA bought a sigh of relief for customers as they feel protected.
Now, as the general election is nearing and as a trend real estate prices tend to go down during these periods. During 2013 RBI set its basic interest rate at 10.30% which made it difficult for buyers to avail of home loans at cheaper rates.
Pradhan Mantri Awas Yojana (Home for everyone till 2022)
Prime Minister Narendra Modi has this ambitious project on his list to provide homes to all Indians till 2022. This is another reason that the demand for real estate has not improved. People are expecting homes at cheaper rates due to PMAY.
Even though Banks are providing Home Loan at 8.65% and Subsidy on interest paid on home loans by government, the market has not shown any significant growth. The likely reason could be the increase in demand is likely to be set off by more supply. Even the increasing rate in unoccupied houses is at an alarming rate. So in the near future also we cannot expect the real estate market to show significant growth.
Lower Rate of Employment
Employment in India has not improved over the last 3 years and if politicians are claiming that there is growth in employment, you can choose to ignore their claims. Once the Employment rate is improved we can expect real estate to get back in demand. But till then Keep Your Fingers Crossed.