Property & Real estate investment in India ? Scenario in 2008
Real estate and Property development is one of the easiest way to track the growth of the country. Without Infrastructure growth its impossible to achieve high growth year after year.
Compared to China there are numerous obstacles in Indian infrastructure growth, which clearly indicate that India will not be able to achieve same growth figure as china year after year. If china has been growing at 10% for India even growing at 8% is a challenge.
I think that Indian infrastructure can grow only at 50-60% in comparison to the Chinese infrastructure growth. Due to this Indian year on year growth figures cannot be even 80% of the china.
Hence average growth in past 5 year will remain below 8% (i think 7%). Hence if India has growth of 9% for 1-2 years, in more years to come growth may be quite less.
There are several factors that clearly indicate that India is in recession phase after 2-3 year of good growth, Its being ignored by lot of people.
- Stock market is falling and given few jerks, these are just like the tremors of earth quake before the real one. I suggest retail investors to not try their luck now.
- Few people argued that people will pull their money form the stock market and then invest in the real-estate so real estate prices will not come down. This is rubbish, real estate prices are already down by 10% across India though little less in Mumbai. In certain pockets upto 30%. I expect average fall of 25%. Real estate boom phase 1 was created with genuine buyers from IT & ITes industries and easy bank loans, but Phase 2 was powered by Investors special FDI, NRI and black money investors who also borrowed from banks. There is bust in the Phase 2 and hence a expected fall.
- But real estate market specially residential is held by people who are very sentimental about property they buy and they rarely sell at lower prices. due to this the sale as well as purchase will get hampered for many years creating lot of social problems as well. Rental may fall. Even many builders hold property for very long to get better returns. In commercial there will be direct fall as business make quick decisions and will sell any property not giving them good returns.
- But as there is entry of some large corporates in Real estate property and infrastructure, to grow and keep getting good revenues even if at low margins, they will setup large residential projects and sell them at low margins. This may ensure lot of low cost housing to be available for next few years. These corporates will be happy to even work at 10% profits unlike small builders who normally target 25-50% profits. The corporates cannot hold property, they have to build and sell every year in large volumes to remain valuable in stock markets. Also their structure ask them not to play games with consumers but offer value to them. many of them are capable of creating a complete new town and city.
- Inflation is increasing, this will significantly impact the buying power of middle class
- In retail sectors its observed that construction or planning on new retail malls has significantly reduced. Few companies will exit mall business.
- Financial markets are in turmoil , this will directly effect industries and production,
- Elections are due in the country within 1 year, which directly impact government to be populist rather then take strong decision to help industries and exporters.
