FORECAST IN BLACK
ANALYSIS IN BLUE
2014 - The Year Ahead
(Indian Real Estate Scene in the first quarter of 2014)
The consensus of opinion on IREF is that the slowdown of 2013 will continue well into 2014. All the factors which caused the bear market of 2013 are even more active in 2014. Until the economy turns around, the industrial recession gets over, the job market recovers and inflation is controlled, the bear market will continue.
Came True
NCR market:The main Delhi market dominated by builder floors has seen actual reduction in prices from the peak by upto 30% in some areas. Dwarka which is one of the large micromarkets within Delhi dominated by apartments has also seen reduction in prices. Now that the correction is over, 2014 is likely to see stagnant prices.
Came True and prices continued to show mild decline in 2014 as well
In Gurgaon, the resale market in under-construction flats has almost died out completely, because of poor delivery record by real estate companies. Dwarka Expressway is the region with the maximal stagnation and absence of deals since the road infrastructure is yet to be completed.
Prices in completed complexes and ready to move (RTM) flats in Gurgaon, especially in Sohna Road are stagnant with few takers at such high prices. There are no price drops since the investors are holding at current prices and are likely to continue to do so in 2014 as well. Further price escalation in this category is unlikely in 2014 although price drops are also not on the cards. Much of the inventory of ready to occupy flats is already in the hands of the end users or long term investors.
Came True and prices continued to show mild decline in 2014 as well
Prices of under-construction (UC) flats in Gurgaon on the other hand are likely to correct in 2014. In 2013, deals died out, but the prices were stagnant. In 2014, the prolonged stagnation, demand for payment from builders and no visibility of further price appreciation is likely to see liquidation of holdings by investors ready to book the remaining profit and limit outgo as constructions complete. This is therefore an opportunity for end users to strike good deals. The maximal such deals are likely before the central and Haryana assembly elections which are about 5 months and one year away respectively. Potential completion premium, usually estimated at 30% is likely to reduce to a much smaller number of around 5 to 10% and thus the benefits of holding on to the flats has reduced for investors. This is likely to result in dropping resale rates of under-construction property. The reduced completion premium will be more marked in Dwarka Expressway since the road and other infrastructure is lacking and hence end users will not wish to move into suboptimal living conditions. In contrast Golf Course Extension Road might maintain premium due to better surroundings and living conditions.
Came True
Plot market is stagnant in Gurgaon in central and peripheral locations and this is likely to continue in 2014, making it unattractive for short term investors. Because of inventory overhand in apartment segment and escalating construction costs as well as changing trends of end user preference, very few people are constructing builder floors in Gurgaon.
Came True
NOIDA: A similar stagnation of prices to Gurgaon is likely to be seen in NOIDA and Greater NOIDA West, but to a lesser extent since NOIDA has more middle income apartments rather than luxury apartments and hence downside is limited. Since almost all builders have drastically slowed on delivery, and because middle class end users are ready to occupy flats even without infrastructure due to affordability factor, a potentially larger completion premium of 20-30% is likely in NOIDA, quite the reverse to Gurgaon where completion premium is likely to reduce, since most of the property is in the luxury sector. Thus majority of NOIDA investors are likely to hold through for long term and a stagnation in prices is likely throughout 2014 without the anticipated price falls of Gurgaon.
Came True and prices continued to show mild decline in 2014 as well
More peripheral locations in the region like Yamuna Expressway, Greater NOIDA main, Kundli and Faridabad are unlikely to see much activity in 2014. Prices are likely to fall in these regions, but more dramatic will be the absence of resale activity as end users stay away.
Came True
Mumbai: Stagnation in main city is expected. Suburban locations are likely to see reasonable price performance linked to Indian economy coming out of recession. Stagnation in the 5000-10000 psf price range and better performance in the 3500-5000 psf price range is likely.
Came True
Bangalore: Saturation of the Bangalore market in the last two years will lead to stagnant prices but slow and steady off take by end users on the back of numerous launches seen in 2013.
Came True in most locations. Some locations fell
Chennai:If industrial revival takes place in latter half of 2014, then Chennai might see a good number of launches in the affordable housing segment in the periphery. As the infrastructure projects slowly get completed, a better real estate market with new launches as well as redevelopment in plotted segment is possible.
Did not happen
Investing in Property in 2014:
In view of the slowdown, property is a poor sector for investment.
Came True
Long term investors looking to buy property for post retirement self use or for holding periods of over 10 years can enter in select locations, cities and segments and look for bargains. The threads on “distress sale in depressed market” on IREF, located in multiple cities, might be a good place to start for this purpose.
Certain general rules for real estate investment in a slowdown can be kept in mind.
1. In a bear market, one should select property in prime locations and not in peripheral locations, since prime locations will be the first to reverse price direction and will give the most sustained returns once the bull market returns
2. In a bear market, one should invest for the long term. For property, a time frame of 15 years or more is ideal.
3. Short term flipping for quick gains on leverage should not be attempted in bear markets. This technique is reserved for bull markets.
4. The most depressed prices in distress sales will be in luxury property and in plots. These will rise the most when the market turns. Deep pocketed investors with the ability to pick up the distress sale and holding through the uncertainties of the bear market will reap the maximal rewards. Deep pockets and lack of leverage will amplify returns in bear markets – thus bear markets make the rich even richer because they alone can afford to buy and hold. This is in contrast to bull markets where short term holding and leverage amplifies returns and risk takers benefit rather than long term holders.
5. The safest investment for middle class investors in a bear market is already built ready to register flats in the affordable segment in the main central areas of the city with existing infrastructure
Luxury property as a whole is better avoided for the year 2014. This is because prices are already high and it is better to wait for lower prices and for bargains to emerge. As the luxury flats booked by investors slowly get completed, investors will be ready to negotiate with bargain hunters.
Plots are also avoidable because of the existing high prices and the lack of performance in plots in the central areas of Gurgaon even during the bull market of 2010-2012. The higher prices for construction of builder floors on plots has made them expensive and out of reach for many. Buyers are also preferring to live in apartment complexes due to better security and amenities. As such, a changing preference of people over time makes it difficult to extrapolate previous price behavior of plots in the past 50 years. Waiting for better bargains but also actively looking for bargains would be prudent for property investors.
Property in the affordable range of 2500 to 5000 psf range will be the best segment for entry, for both end users and investors, due to limited downside.
All of these were correct advice
The main requirement for a boom in property market is a recovery from the current industrial recession. Until the industrial revival generates more well paying jobs, the real estate market cannot revive. The industrial revival is likely to happen in the next 2 years based on cyclical factors, however the strength of the industrial revival is crucially dependent on the general elections of 2014. A strong decisive pro-industry government will cause a dramatic improvement in the industrial climate and a sustained stock market performance followed by an equally sustained real estate market performance will follow. A fractured mandate will cause a weak revival but consequent turbulence in exchange rates can have unpredictable results on real estate price inflation. High imported inflation, escalation of raw material prices, escalation of capital cost etc can have paradoxical results in the real estate market by making the cost of new construction prohibitive. Existing property which is registered may therefore become more valuable while under construction projects might be abandoned.
The prudent real estate investment is therefore to buy only ready to move ready to register flats in the affordable range in central locations and having good infrastructure – or to wait for the general elections and perhaps the Haryana elections also to get over before making any fresh commitments into property market.
As with equity, the best option is to wait for the general elections to get over.
The best locations for investments in 2014 are:
1. Chennai
2. Bangalore
3. Dwarka in Delhi/NCR
4. RTM property in Thane and other similar locations in Mumbai
The locations to avoid for 2014 are:
1. Dwarka Expressway, Yamuna Expressway, Kundli, Faridabad for location
2. Under-construction property in NOIDA, Gurgaon, Mumbai suburbs, Pune – in all of these locations prefer property which is ready to move and register
3. Plot investments in all locations
4. Land in tier 2 and tier 3 cities – prefer ready to move built up property only
Despite property being in a bear market, it is a good hedge against Rupee depreciation in the long run and hence every person should have some exposure to property. Buying small ready to move in flat (I BHK or smaller if salary is inadequate) based on a small portion (<20 a="" always="" and="" any="" arise="" at="" be="" br="" buying="" can="" does="" done="" emi="" for="" going="" investment="" not="" of="" prudent="" question="" salary="" such="" time.="" timing="" towards="" would="">
All of these were correct advice
ANALYSIS IN BLUE
2014 - The Year Ahead
(Indian Real Estate Scene in the first quarter of 2014)
The consensus of opinion on IREF is that the slowdown of 2013 will continue well into 2014. All the factors which caused the bear market of 2013 are even more active in 2014. Until the economy turns around, the industrial recession gets over, the job market recovers and inflation is controlled, the bear market will continue.
Came True
NCR market:The main Delhi market dominated by builder floors has seen actual reduction in prices from the peak by upto 30% in some areas. Dwarka which is one of the large micromarkets within Delhi dominated by apartments has also seen reduction in prices. Now that the correction is over, 2014 is likely to see stagnant prices.
Came True and prices continued to show mild decline in 2014 as well
In Gurgaon, the resale market in under-construction flats has almost died out completely, because of poor delivery record by real estate companies. Dwarka Expressway is the region with the maximal stagnation and absence of deals since the road infrastructure is yet to be completed.
Prices in completed complexes and ready to move (RTM) flats in Gurgaon, especially in Sohna Road are stagnant with few takers at such high prices. There are no price drops since the investors are holding at current prices and are likely to continue to do so in 2014 as well. Further price escalation in this category is unlikely in 2014 although price drops are also not on the cards. Much of the inventory of ready to occupy flats is already in the hands of the end users or long term investors.
Came True and prices continued to show mild decline in 2014 as well
Prices of under-construction (UC) flats in Gurgaon on the other hand are likely to correct in 2014. In 2013, deals died out, but the prices were stagnant. In 2014, the prolonged stagnation, demand for payment from builders and no visibility of further price appreciation is likely to see liquidation of holdings by investors ready to book the remaining profit and limit outgo as constructions complete. This is therefore an opportunity for end users to strike good deals. The maximal such deals are likely before the central and Haryana assembly elections which are about 5 months and one year away respectively. Potential completion premium, usually estimated at 30% is likely to reduce to a much smaller number of around 5 to 10% and thus the benefits of holding on to the flats has reduced for investors. This is likely to result in dropping resale rates of under-construction property. The reduced completion premium will be more marked in Dwarka Expressway since the road and other infrastructure is lacking and hence end users will not wish to move into suboptimal living conditions. In contrast Golf Course Extension Road might maintain premium due to better surroundings and living conditions.
Came True
Plot market is stagnant in Gurgaon in central and peripheral locations and this is likely to continue in 2014, making it unattractive for short term investors. Because of inventory overhand in apartment segment and escalating construction costs as well as changing trends of end user preference, very few people are constructing builder floors in Gurgaon.
Came True
NOIDA: A similar stagnation of prices to Gurgaon is likely to be seen in NOIDA and Greater NOIDA West, but to a lesser extent since NOIDA has more middle income apartments rather than luxury apartments and hence downside is limited. Since almost all builders have drastically slowed on delivery, and because middle class end users are ready to occupy flats even without infrastructure due to affordability factor, a potentially larger completion premium of 20-30% is likely in NOIDA, quite the reverse to Gurgaon where completion premium is likely to reduce, since most of the property is in the luxury sector. Thus majority of NOIDA investors are likely to hold through for long term and a stagnation in prices is likely throughout 2014 without the anticipated price falls of Gurgaon.
Came True and prices continued to show mild decline in 2014 as well
More peripheral locations in the region like Yamuna Expressway, Greater NOIDA main, Kundli and Faridabad are unlikely to see much activity in 2014. Prices are likely to fall in these regions, but more dramatic will be the absence of resale activity as end users stay away.
Came True
Mumbai: Stagnation in main city is expected. Suburban locations are likely to see reasonable price performance linked to Indian economy coming out of recession. Stagnation in the 5000-10000 psf price range and better performance in the 3500-5000 psf price range is likely.
Came True
Bangalore: Saturation of the Bangalore market in the last two years will lead to stagnant prices but slow and steady off take by end users on the back of numerous launches seen in 2013.
Came True in most locations. Some locations fell
Chennai:If industrial revival takes place in latter half of 2014, then Chennai might see a good number of launches in the affordable housing segment in the periphery. As the infrastructure projects slowly get completed, a better real estate market with new launches as well as redevelopment in plotted segment is possible.
Did not happen
Investing in Property in 2014:
In view of the slowdown, property is a poor sector for investment.
Came True
Long term investors looking to buy property for post retirement self use or for holding periods of over 10 years can enter in select locations, cities and segments and look for bargains. The threads on “distress sale in depressed market” on IREF, located in multiple cities, might be a good place to start for this purpose.
Certain general rules for real estate investment in a slowdown can be kept in mind.
1. In a bear market, one should select property in prime locations and not in peripheral locations, since prime locations will be the first to reverse price direction and will give the most sustained returns once the bull market returns
2. In a bear market, one should invest for the long term. For property, a time frame of 15 years or more is ideal.
3. Short term flipping for quick gains on leverage should not be attempted in bear markets. This technique is reserved for bull markets.
4. The most depressed prices in distress sales will be in luxury property and in plots. These will rise the most when the market turns. Deep pocketed investors with the ability to pick up the distress sale and holding through the uncertainties of the bear market will reap the maximal rewards. Deep pockets and lack of leverage will amplify returns in bear markets – thus bear markets make the rich even richer because they alone can afford to buy and hold. This is in contrast to bull markets where short term holding and leverage amplifies returns and risk takers benefit rather than long term holders.
5. The safest investment for middle class investors in a bear market is already built ready to register flats in the affordable segment in the main central areas of the city with existing infrastructure
Luxury property as a whole is better avoided for the year 2014. This is because prices are already high and it is better to wait for lower prices and for bargains to emerge. As the luxury flats booked by investors slowly get completed, investors will be ready to negotiate with bargain hunters.
Plots are also avoidable because of the existing high prices and the lack of performance in plots in the central areas of Gurgaon even during the bull market of 2010-2012. The higher prices for construction of builder floors on plots has made them expensive and out of reach for many. Buyers are also preferring to live in apartment complexes due to better security and amenities. As such, a changing preference of people over time makes it difficult to extrapolate previous price behavior of plots in the past 50 years. Waiting for better bargains but also actively looking for bargains would be prudent for property investors.
Property in the affordable range of 2500 to 5000 psf range will be the best segment for entry, for both end users and investors, due to limited downside.
All of these were correct advice
The main requirement for a boom in property market is a recovery from the current industrial recession. Until the industrial revival generates more well paying jobs, the real estate market cannot revive. The industrial revival is likely to happen in the next 2 years based on cyclical factors, however the strength of the industrial revival is crucially dependent on the general elections of 2014. A strong decisive pro-industry government will cause a dramatic improvement in the industrial climate and a sustained stock market performance followed by an equally sustained real estate market performance will follow. A fractured mandate will cause a weak revival but consequent turbulence in exchange rates can have unpredictable results on real estate price inflation. High imported inflation, escalation of raw material prices, escalation of capital cost etc can have paradoxical results in the real estate market by making the cost of new construction prohibitive. Existing property which is registered may therefore become more valuable while under construction projects might be abandoned.
The prudent real estate investment is therefore to buy only ready to move ready to register flats in the affordable range in central locations and having good infrastructure – or to wait for the general elections and perhaps the Haryana elections also to get over before making any fresh commitments into property market.
As with equity, the best option is to wait for the general elections to get over.
The best locations for investments in 2014 are:
1. Chennai
2. Bangalore
3. Dwarka in Delhi/NCR
4. RTM property in Thane and other similar locations in Mumbai
The locations to avoid for 2014 are:
1. Dwarka Expressway, Yamuna Expressway, Kundli, Faridabad for location
2. Under-construction property in NOIDA, Gurgaon, Mumbai suburbs, Pune – in all of these locations prefer property which is ready to move and register
3. Plot investments in all locations
4. Land in tier 2 and tier 3 cities – prefer ready to move built up property only
Despite property being in a bear market, it is a good hedge against Rupee depreciation in the long run and hence every person should have some exposure to property. Buying small ready to move in flat (I BHK or smaller if salary is inadequate) based on a small portion (<20 a="" always="" and="" any="" arise="" at="" be="" br="" buying="" can="" does="" done="" emi="" for="" going="" investment="" not="" of="" prudent="" question="" salary="" such="" time.="" timing="" towards="" would="">
All of these were correct advice
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