The Indian real estate market right now stands in equilibrium as prices are stable across most cities. However, this is slated to change in the mid- to long-term if demand should outweigh supply, primarily due to decline in residential launches.
Sales have, in fact, overshadowed new launches in the past four to five quarters, signalling the revival of the sector. The Reserve Bank of India reducing the repo rate by another 35 basis points this month will bring down interest rates on home loans, which should boost demand. Equities have also not been performing well in the last three quarters or so, making real estate lucrative for investors to park their investible surplus.
Asset classes like equity stocks, government bonds, post office schemes, savings on bank deposits and bank fixed deposits are all in a downward spiral. India’s macroeconomic indicators have been headed southward.
A weaker growth outlook
The IMF has also downgraded India’s growth forecast by 0.3 per cent from 7.5 per cent in April, primarily due to the slump in investment and consumer demand and mounting disinflationary pressures. Moody’s has cautioned that India’s economic progress over the next couple of years will be weaker. This might increase non-performing loans (NPLs), including personal credit defaults and cause further dampening of overall consumption volumes.
The equity market has a bearish outlook with most blue-chip and mid-cap stock values declining and foreign investors withdrawing investments. The majority of the portfolio management services have had negative monthly returns in June, lending a sombre outlook of the overall equity market.
Public sector banks have cut interest rates on fixed deposits, which means the yield on maturity will decline for fixed-deposit investors. Interest rates on popular savings schemes like public provident fund and national savings certificates have also been lowered, which can reduce the attractiveness of these schemes.
Key sectors under perform
Agriculture has witnessed tepid growth. An erratic monsoon this year has hit the sector hard, with nil to negative growth expected in the short to medium terms. While agriculture is not really an investment asset class for most, the performance of the sector is nevertheless a macroeconomic indicator for India.
Growth in the automobile sector is almost nil and the industry is facing its biggest growth crisis. Even at the best of times, automobiles are depreciating assets and therefore not suitable investment instruments.
Surprisingly, gold has had a bull run in recent times following the Federal Reserve rate cut, escalating trade tensions between US and China, and the depreciating rupee value against dollar. The metal’s prices hit an all-time high and have crossed the 38,000 rupee mark for 10 gram of 24k gold. However, despite this rise, unlike in previous times, investors are increasingly sceptical on its lustre.
Real estate remains a good hedge
Indian real estate is still a viable and fairly safe long-term investment option. Investors with a short-term view on “instant returns” need to look elsewhere, but most other asset classes are quite volatile in nature and will continue to remain so. India’s residential real estate is a long-time favourite, and recent trends suggest a positive outlook.
Property prices have bottomed out and cannot possibly reduce further, especially since construction costs are gradually heading north. That aside, both the government and the RBI are making concerted efforts via various sops to revive housing demand. Other than the tax sops doled out in the recent budget, there have been four successive rates cuts by the country’s apex bank, which is ultimately aiding commercial banks to reduce home loan rates for prospective buyers.
Thus, it is an opportune time for prospective buyers to take the plunge in the Indian residential market across budget segments, be it for end-use or for investment.
To illustrate in numbers, the top seven cities saw housing sales rise by 32 per cent in the first-half of the year, as against the corresponding period a year ago. Interestingly, the Mumbai Metropolitan Region, Pune and Delhi’s National Capital Region were the top three markets to witness the maximum yearly increase in housing sales.
No other Indian industry is as heavily incentivised as housing — the government has a critical political target to meet in its Housing for All by 2022 promise. For investors who believe in the time-tested adage ‘invest at the lower end of the growth curve and sell at the top, the timing is perfect now.
Shajai Jacob is CEO — GCC at Anarock Property Consultants.