Real Estate Guide: The Anatomy of Indian Housing Market – Vinita Tiwari

Bangalore, Dec 04, 2014
Economy plays a major role in deciding the fate of any industry operating within a country. Indian economy is fast picking up the pace and the newly formed government is expected to bring a sigh of relief by relaxing the FDI norms and easing up few stringent policies. The domain that will be affected to maximum because of such changes will be the Real Estate. The Union Budgets declared so far had very little or no graceful amendments in the policies when it comes to the sector. However, with new budget and decision being inked, the realty sector is surely going to scale heights.

The ‘Thumb Rule’

It is an axiom in the realty market that Indian housing section is hugely affected by the broader economy. When the economic times are good, certain parts of the housing market will experience a health growth. However, in tough scenarios, the market plunges with sales volume witnessing a droop. The housing market in India has now become accustomed to fiscal ups and downs now. The primary reasons are global scenario affecting the Indian economy and situations like festivals, price appreciations etc.

The Deadliest Impact, Explained

The two segments of the housing market are hugely affected by the prevailing economic scenario. Here’s how:

1. Home Starts

Home Starts is one of the major factors that reflect the health of an economy. This very segment is tracked by tapping on the number of new residential construction projects that initiates in any month of the year. If the economy is going ‘great guns’ then people will have high purchasing power thus home sale volume will increase. On the other hand, people are less likely to go about buying homes. This very important factor majorly affects related markets like mortgages, land sales and employment as well.

The Q3-2014 Real Estate Sentiment Index by Knight Frank and FICCI revealed that the housing market is reflecting a mixed bag of emotions. There are parts of India like Bangalore and Chennai that are riding high on the success of their residential space market. The major reason behind the grand success is the high migration rate and expat activity.

2. Home Sales

This very aspect has a different tangent associated with it. The home sale figures are directly associated with the health of the economic arena. A sluggish economy leads to a very restrictive money flow, which in turn leads to fewer home buyers. This is a vicious circle, which tends to entangle the entire realty market in its deadly trap. Restrictive lending requirement is one of the major factors that yield fewer buyers available. Such scenario can make inventories go high and selling activity may take a back seat.

The above two aspects are the main pillars of the Indian realty market and are vulnerable to the blows of the economy here in. There are other aspects like sluggish money supply and sudden market crash, which affects the housing market in a great way.

Here’s an illustration that will explain the real estate supplies in some of the most eyed upon cities:

Source: 99acres Quarterly Price Trend Analysis, INSITE

So, What’s The Next Step?

The economy is expecting to flourish soon as the new government plans scheme to welcome more and more FDI. At the moment, the fiscal arena allows buyers to invest in some of the major Indian cities. Then on the other hand, there are cities that are not to welcoming at the moment. Let’s have look at the most favorable cities in India and their present home buying scenario:

1. Mumbai

Apart from the associated glamor, there are other things that define the spirit of Mumbai, as a city. The city has managed to pull in a lot of people from different parts of the country. Jobs, woven dreams or simply changing place of living; it could be any of the reasons that make Mumbai one of the best places to work and live in. The FICCI report has clearly stated that realtors in Mumbai are not keen to start new projects as they are waiting to clear the backlog piled up with projects. Meanwhile, the realty arena is reaping fortunes from the already-launched  residential spaces in Mumbai that are promising and affordable.

2. Delhi-NCR

Delhi/NCR is another region in India, which records a high migration rate and encapsulates people with good per capita income. The reason is stationed IT industry and opportunities for people to have a good life. Noida, Greater Noida and Southern part of Delhi experiences major construction activities in both residential as well as commercial section. The mentioned survey reflects not-so heartening situation as number of buyers have gone stagnant. The realtors are focusing on pending projects and are not interested on new ones.

3. Bangalore

Bangalore is a city to be at the moment. The roads, malls and the youth; everything about this city is modern and classy. Expats from different Indian cities are coming to Bangalore for good life and better career opportunities. Owing to high expat activities, housing options in Bangalore are affordable and modern at the same time. This is another Indian city where people have high per capita income and thus, buying homes is a common activity. The FICCI report hasn’t shared anything negative or threatening for Bangalore thus declaring it as a saving grace for the Indian realty market.

Here is an illustration of the Sentiments Now and expected:

Source:  http://www.knightfrank.co.in/

The Verdict

Apart from the mentioned cities, there are other regions like Chennai and Hyderabad that are gaining popularity fast. The industrial boom in these cities is also managing to coax realtors to station more and more projects in the housing market.

Source :

http://homeguides.sfgate.com/economy-affect-housing-market-50583.html

http://www.investopedia.com/articles/mortages-real-estate/11/factors-affecting-real-estate-market.asp

http://www.knightfrank.co.in/news/sentiments-still-riding-high-though-investors-remain-cautiously-optimistic-06154.aspx