Real estate (RE) investments (residential segment) have for long been the automatic investment choice for people with high net wealth. Coupled with being an ideal source to park black money for the corrupt, RE has been thriving on growing demand of people looking for a shelter as against staying on rented accomodation. However, in year 2014 and 2015, RE in India has seen one of its worst times since late 80s ( just before Indian economic reforms). Due to increased private participation (rather control) in residential segment, this market has only grown unregulated over a period of time. People have not only shown lack of faith and interest in pursuing a residential property dream, but have also realized that investment in RE is no longer the money machine it used to be. An average of almost 4% yearly returns (which is almost half in comparison to an FD investment) is a clear indicator of shrinking returns through RE. But, times to come have a future bleaker than ever before.
With supply far exceeding actual demand already, getting good returns on RE today is rare but for a good builder and project which in itself is rare. However, the future is expected to be worse. With government at both center and state seriously mulling affordable rental housing option along with the already initiated affordable housing scheme for all by 2022, one can expect around 4 crore homes under the scheme (Data Courtesy: KPMG ) with around 1 crore of additional affordable rental options by year 2020. The assumption that has gone behind reaching this figure of 4-5 crore properties is that 70% of growing population seeks accommodation which in itself may be flawed and much over the actual demand which would further lead to over-supply.
The affordable rental option could mean a complete shift of people’s outlook towards buying a house. As a result, only the luxury segment that targets HNW (high net worth) investors may survive in future. LIG and MIG segments are expected to merge partially with affordable housing options meaning a tremendous fall of returns on property for this segment.
With the given situation and expected turnaround of events,we feel it could be difficult to avert the inevitable. RE investors especially residential RE are best suggested to hold the guns now and invest in other channels and wait for a revamp of industry which could be far beyond end of next decade.
What is your thought on this topic? We will wait eagerly to hear your point of view.Last updated: December 15, 2015 at 17:53 pm