19/03/2021
Why the Real Estate sector looks weak
1) Prices have corrected by 30%
2) Property purchased 12 to 14 years back is now being sold at loss if one takes indexation into account
3) Many may think NOW is the time to invest because prices are at an all time low
4) The lure of the glorious past keeps coming to haunt us; after all who wouldn't like to be on that ride to wealth creation by property purchase as it was in the not too distant past
5) However there are several reasons why this may not play out. To begin with we are witnessing a transformation of the social and economical ecosystem and cannot afford to dig our heads in the ground like an ostrich and say all is well
6) Work from home culture, GIG economy (where you get paid for skill rather than time) means the pressure to stay in a particular location has significantly reduced causing demand to drop and this may not be a temporary blip
7) People are aware that their jobs are nowhere close to permanent. In fact one is coming to realise that not only one may have to change jobs but perhaps one may even have to change several professions over one's life time
8) So if we are hoping to work just for a few years in one organization and then change to another, where is the motivation to buy a house once we understand that we need to relocate
9) Let us understand without deluding ourselves that house purchase is a long term proposition and this Goal becomes viable with the help of long term loans of 20 years and more. So if one does not have the confidence to keep the job for 20 years, how can one take on the liability of a heavy EMI for 20 years
10) There is just too much change happening around us and it is getting harder and harder for us to reconcile with these changes and make sense of the way forward. Hence staying liquid in wealth is the best option and locked up wealth perhaps the worst
11) COVID 19 and the ensuing lockdowns have made the theory of change leapfrog several decades and will go down as a watershed moment in the evolution of society
12) A home is not as much an asset as we often see it as. It is the area/location which lends value to the house.
13) Demand to stay in a particular location / area initially sees a huge accelerated growth but then over the long term this demand drops at a rapid rate
14) Look at locations like Nariman Point which use to be the Manhattan of India now reduced into a concrete graveyard with no takers
15) As new businesses emerge, better communication systems emerge and as better quality of life is desired at a lower cost, the principle of arbitrage steps in
16) At such times one trades the erstwhile posh locations for upcoming developing areas with quality facilities and low prices. The rise of Parel, Sewri, Thane, Powai and the entire New Mumbai stretch of Vashi, Kharghar, Nerul etc is an outcome of this evolution
17) Besides as people get prosperous, aware and demanding the desire to "trade up" to better and modern quality homes also adds to the selling pressure
19) Black money which was a huge support factor for this sector has disappeared after demonetization &the rise of the digital economy
20) The sector which erstwhile prospered in a unregulated environment is now brought under the new real estate regulator RERA. As new regulations take roots they will shape a more reasonable future where the purpose of a house will be clearly articulated as a PLACE TO LIVE rather than BE TREATED as an INVESTMENT ASSET
20) Too much of uncertainty will thus become the main reason for transforming an erstwhile ASSET INTO A LIABILITY
