The Real Estate Chaos

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There is so much clutter around this space that it has become chaotic. Let us try to dissect it, you ask why? I would like to make a point at the very beginning that owning a house has become too expensive, especially right now.

Lies and Illusion

When we approach to buy a property, the builder claims to have a 15 - 20 per cent markup but they make almost 40 per cent profit, it is a fraud and unfortunately one cannot help it. 

Another thing is about the builder flaunting his property as the perfect one, looting buyers in the name of the balcony, lake view, views of any other attractions, etc., they have a knack for doing this, trust me!

Why We Are Gullible?

Yes, home is altogether a different asset, as it involves sentiments, which make the buyers so gullible that we end up paying for every facility as it is ‘our home’. If we are a little rational like we always are, it would save us from this trap. 

We make a purchase and subsequently pay instalment equal to 3.5 times the monthly rent. The top 8 cities in India are going crazy about this.

Lockdown – Shutter Down

The sales in the top 8 cities went down by a whopping 79 per cent, this quarter. What is more intriguing is that inventory overhang increased, simply the time is taken by the builder to sell finished inventory (house).

In the NCR (National Capital Region) market of India, it was 53 months. Which translates that a builder after constructing a full-fledged home, needs to wait for 53 months to find a buyer! Isn’t that crazy? It gets crazier.

What Is Happening Right Now?

There was a deep slowdown before the COVID-19 outbreak, I leave the job of imagining the worst ever scenario for this space over to you because that is what this crisis does, it brings everything to its low. 

When people are unsure of their economic future, they tend to cut spending on almost everything, and home doesn’t even fall in their list. 

What Can I Earn?

Frankly speaking, nothing! As per RBI Housing Price Index, the one-year return made from housing was 3.5 per cent and the five-year return, 6.7 per cent. Moreover, these returns are not inflation adjusted, so, yes, it is terrible!

I personally don’t like FD’s (Fixed Deposit) but unfortunately, it is giving me a better yield than my own house. So, it is not lucrative anymore to hold the house as an investment, as it is nothing but a losing investment.  

A Bit on Prices -

Just one simple but a heavy word describes it the best - Unaffordable. So much so that one cannot even think of it! There was a rally in the housing prices from the year 2002 – 2011 and it has barely come down from those levels. 

Why there is no price fall? Considering the current situation, economics says there should be a deep correction (fall) in housing prices but, no. There is a negligible demand for housing right now, there are no jobs, so many businesses got vanished in thin air, but astonishingly, supply is not coming down. 

The system does not want it. The system of banks, housing finance companies, investors, buyers, thereby no equilibrium because there is low supply-low demand environment, weird, isn’t it?

Dig Deeper

When builders begin to construct, they take a loan from a bank or an NBFC by pledging the house which would be built subsequently. If there is any price damage for that house, it would affect the ‘collateral’ value for the bank, which it does not want.

If houses are built and not sold, there is a massive pile of unsold inventory, it is a loss for the builder and the bank as well as the economy. As a buyer, I would not want to sell my house at a loss, thereby unwilling to trim prices, as an investor I wouldn’t want my company’s stock price to fall because of this chaos.

At the end of the day, it is ‘us’ asking for a low price and ‘us’ not willing to sell it. 

Written by - Manvinder Arora  
Edited by - Ivanova
The Real Estate Chaos The Real Estate Chaos Reviewed by Ivanova on August 02, 2020 Rating: 5

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