Tuesday, October 14, 2008
Realty has seen a sharp slump and this has sent the world economy into a dizzying cycle, the question on everybody`s mind is . Is it time yet to invest in Real Estate? The simple rule across all investment markets is `Buy low; Sell high`, it holds good even in the Real Estate market. But what one waits for is the cycle to bottom out which will enable us to buy at the lowest point, this could be crucial as one could often miss the same. Especially in case of Real Estate where the trend reversal would happen in leaps and bounds and the cycle is long term, the trend reversal could mean significant opportunity loss.
Current Market Scenario
According to a survey made by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), real estate boom will further roll down in 2008 and it is only the beginning of a mega fall which is awaited. In the year 2007, this sector was key in contributing to the phenomenal growth the GDP, the sector alone notched between 40-45% growth. The Chamber is also of the view that India has already emerged as the 5th world`s largest investment destinations globally because of its market and potential which is made up of India`s population base. These facts are contradictory by nature and hence could be misleading, but one needs to understand the Real Estate as an investment needs to be looked at with a 5 - 15 years perspective
This is simply indicative of the fact that not all is over as yet, and the current slump could well be a silver-lining for a person who is contemplating an investment. However, it could well be a bad news for one who has already made the investment right at the peak and could end up sitting on a pile of book losses; this would be a bad situation especially in the real estate market, given that the market cycle in this case is relatively of a longer period.
Trend over the years
The era of Nineties witnessed frenzied boom in residential property on the back of a booming stock market and a liberalization process that was kicked off in 1991. The stock market and real estate market crashed in quick succession between 1994 and 1995, real estate cycle inherently prone to the longest market cycle, it took a whooping 8 years of little or no appreciation in real estate. Biggies like Donald Trump saw major wealth being eroded, this was an era where the myth that real estate never slumps was shattered. There are many analysts drawing stark similarities in the current scenario. In fact globally realty has led the way in sending the other key economic indicators into a whirlpool of turmoil.
On an average Real Estate sector is instrumental to the development of 269 other industries and hence, could have an impact on the overall economy as well. This in turn leads to lower demand for real estate compounding the impact.
Real Estate can be viewed in multi facets; one can buy real estate (Residential) for staying or from a mere investment perspective. The downtrend is very likely and on an average the turnaround could take a couple of years`. This simply means that there is about 12%-15% correction well within the lap of current real estate scenario, this is indicative that there is time left for the cycle to bottom out. The impact in India is not expected to be as significant as it has been in the rest of the world where prices have corrected up to 50%.
Real Estate from a residential property (for self-stay) perspective, need not categorically be timed. One can go ahead with the stipulated plans over the next few months, considering the tax benefits that one also has and the real need that one has. However, real estate from a purely investment perspective can be stalled for next couple of months, and invest if the market falls. Considering the turmoil, a fall if any could happen over the next 3 months.
If one is considering Real Estate from an Investment perspective .We suggest a Wait `n Watch approach! The period could be about 6-12 months since even if the Realty market does not fall; one does not expect returns to be high over the next 12-24 months.