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By Venture Briks

The unsettled plan of settlement: Indian Realty Sector

July 25, 2020

From the Indian perspective, buying a home is considered to be a great achievement. It is more of a status symbol that speaks how well you are settled with your life. More, or less, owning a house is indeed a pride symbol, given that not everybody can afford the home in the unsettling real estate of India.

It’s been quite a few years since netizens are waiting for a boost in the real estate of the country. The sector is slumping and so does the common man’s identity and individuality. The unsold inventories are on a rise, and the ones that have made it to the sold inventory are dealing with possession issues with the builders.

Going back in the timeline, when real estate in India was in a better phase, home prices accelerated at a massive pace between the year 2002 and 2015. Even after hitting the rock bottom, people still can’t afford to buy a property. Why so? Why is the average Indian is still waiting for the home prices to fall? Even though the prices have fallen in some cities and are stable in others, why is there a surge in the unsold inventory?

The Great Economic Slowdown

The reason for this is that the real estate sector in the country is now a low demand market. In view of the times we are living in, people are losing their jobs, or not getting full salary. Small businesses are going for a toss and buyers are definitely not attracted to the immediate urge of buying a house. People are now going on savings mode, which is why the GDP growth is predicted to be negative for the year 2020-21.

In addition to this, there exists a system deep down in the sector that does not want the home prices to fall anytime soon or any below.

Bank Loans are of a little help

Going by the data, the average home loan size in 2016-17, 2017-18, and 2018-19 was about Rs. 9.03 lakh, Rs 7.83 lakh, and Rs 11.83 lakh respectively. The amount seems to be too small because most of the public sector banks and housing finance companies provide home loans up to Rs. 10 lakh. Living in metro cities, we all know that nothing can be brought with this kind of a home loan. Even studio apartments cost more than twice the money the bank provides.

If we talk about the loans of more than Rs 25 lakh, the borrower had to pay 30 percent of the total amount as a downpayment. For instance, if a bank is providing a loan of Rs 28.68 lakh, which s the average loan provided by public sector banks in the year 2018-19, the borrower has to submit Rs. 12.29 lakh. Summing up both tell that the house works around Rs 41 lakh, in addition to the extra costs.

The point is that even though the house prices fell for the last few years, the base price of homes is already very high, making them unaffordable for most of the people looking to buy one

Why have people gone slow on buying homes?

The FMCG sector is going to contract, the automobile sector is already going through a slump. Given the ongoing crisis when people are saving up on their expenses, it is very unlikely to see people getting ready to buy homes to live in. The recession has already knocked the Indian Market, people are losing jobs and incomes are going down, people are not in the state of committing financially.

The new real estate story

Going through the facts, maybe the reasons for the unsettled real estate market can be called genuine but a more important aspect to be considered is that, the prices at which one is willing to buy should match the price at which the other party wants to sell. That is how any market works. Whatever luxury and attractive deals the builders have to offer, the transactions will not happen unless the prices match the pockets of an average Indian.

Although many consultancies and analysts who follow the sector closely are talking about the economic environment to improve by the last quarter of this fiscal year.

But this is not new. There have been many assumptions and predictions on a possible boom in the market but till now, nothing much is evident.

Should we expect anything different this year? Honestly, one can not say much about it. Given the conditions of the Indian realty sector, builders and developers don’t have a legit plan to handle the post-COVID economic scenario. Only if the prices fall, the demand is going to rise back, and this is the only possible outlook for the comeback of the real estate market in the country.