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The real estate market is on the verge of an uptrend, writes Mythili G. Nirvan
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— Photo S. Ramesh Kurup
Right time: Investors can delve into the property sector now.
Will there be a correction in the real estate market in Bangalore is a question every investor has on his mind all the time. Investors need to know the answer to this critical question for two reasons: primarily to make investments, and also to exit from positions held by them. The key to a good investment that yields healthy capital gains lies in timing the market. But, timing a market correction or boom has never been easy. And as our markets relate more strongly with gl
obal markets, and align with developed economies, it is getting increasingly difficult to pre-empt triggers that could tip the scales.
So, the trick lies in analysing ground conditions that will, in the long term, chart the course of the market. Short-term volatility in prices, corrections and cyclical churns notwithstanding, the trend can be predicted for the long term, based on fundamentals.
The lessons for analysts from the mid-90s crash in real estate are simple. Investors cannot drive the market on their own for long. And, a market driven by end users and based on sound economic principles such as demand from a sunrise industry has a long-term potential.
The property market in Bangalore saw the upheaval of the mid-90s because it was investor-driven. Prices skyrocketing then based on hype could not sustain a cash crunch. With no end user demand to back the price rise, the property industry saw rough times.
Talk of a correction now is in a different perspective. Unlike in the mid-90s, it is not about no buyers looking for a roof over their heads, it is about a demand-supply tilt favouring supply. This is a cyclical trend that you see in every industry. The rupee rising against the dollar and its effect on the IT industry, a large number of projects in the completed stage and the sluggishness in the market has seen some price correction in the recent past. All this together has seen the market turn bearish from an investor’s perspective.
Crucial factor
However, the absorption from end users is still on and this is the single biggest difference between a demand-supply equation related correction and a crash along the lines of the one in the mid-90s. This in itself is an indication of an uptrend in the months ahead.
“To those who are looking for a house for themselves, the market condition is irrelevant. They always look for a property that works well for them in terms of location and construction,” says R. Balaji, CEO, Propmart, a real estate consultancy firm. “This correction is not about no buyers, but about investors taking a back seat as they are not comfortable with the amount of supply in the market,” he adds.
So, how do you gauge the property market for its investment potential? To begin with, the India Inc story has a Bangalore dimension that spells high growth in the new-age economy. The international airport and the influx of IT majors on the cards with the planned spaces for IT development spell boom time for the property sector.
“While the stock markets ride a see-saw on the back of the U.S. sub-prime crisis and imminent recession in the U.S. economy has world markets tumbling, the dollar push is not much of a factor in this huge domestic consumption-led economy. This is because globally the IT sector still finds the Indian market a good field with the huge talent pool and relatively low cost of operations and manpower,” opines Sanjay Nigam, Director, Trilogy Inc., a U.S.- based business solutions provider.
Money power
With the IT sector driving the property market here, the foundation is strong. There is an estimated Rs. 12,000 crore in the hands of five lakh IT professionals coming into the market every year. A good percentage of this goes into the property sector as a house is invariably the first asset an executive invests in. This is the peg on which the property sector pins hope.
“There is also a huge boom expected in the automotive and retail sector. As more people come looking for career options in these sectors, the demand for housing will go up. This will lead to the demand-supply equation evening out,” says Peter Wink, Managing Director, Mann And Hummel Filter Pvt. Ltd., a German engineering and manufacturing company for liquid & air filters and filtration systems.
As the India Inc. story rides on, the property sector will see higher demand coming its way. Investors can look at property again now, especially in Bangalore. The fundamentals are strong. The airport and arterial road connectivity will see more land parcels opening up for development. “The distance from the city centre to suburbs is shrinking thanks to the augmented connectivity. This takes city centre pricing to further locations too. The distance is the underlying factor for pricing and good roads will have a bearing on prices,” concludes R. Balaji.
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Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
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