Era of quick capital appreciation over

With the economy giving indications of recovery and real estate companies putting up a brave face, the question as to whether this is the right time to buy property has yet again been raking up. If the industry figure is to be believed, it seems many of the prospective home buyers who had put their plans on shelf due to the threat of job loss & inability to pay the EMIS borne out of recession are back in the property hunt. Booking of all the 1400 flats within hours of opening of booking by a leading realty company is also seen by a section of realty analysts as the rediscovery of confidence in the market. Crisis of confidence is said to be over in a market where one of the developers sold its entire 3,500 apartments in less than two days while selecting buyers through draw of lots.

According to a report of real estate research firm PropEquity, the sale of newly launched apartments have gone up from 7% in the October-December quarter of 2008 to 14% in January-March quarter of 2009, and further to 21% in April-June quarter of 2009. This suggests that as prices have fallen, end users are coming back to the market. Even the demand for office space is on the upswing. According to a global realty consultancy firm Cushman and Wakefield’s report on office space, “The demand for office space across the country in April-June quarter of 2009 increased in excess of 65% over the January-December quarter.”
However, these industry figure also conceal more than they reveal on the pulse of the property barometer. The answer as to whether this is the right time to buy is not a simple yes or no, but it depends on a number of factors like whether a buyer is looking for first or second house, for living or investment, if investment then it is for the long run or short run etc. If we take Delhi-NCR as a Case Study here, it has seen two booms and two slumps in the last over a decade. The ups and downs may continue regardless of prevailing market sentiments, depending on the project, geographical locations and various other factors.
These booms and slumps predominantly affect active investors and traders in property who want to make money on every deal they make. Not for those who’re looking for a home to move into. Even when the market was worst hit with the recessionary impact there were good deals in market for those looking to invest in property. If the fundamentals are strong like clear titles, area where growth is expected etc and the price correction has already happened, then one may opt for buying.
This doesn’t at all suggest that the road to recovery for the realty companies is smooth. Many of the front line realty players are deep into debt, and their stock valuation has also nosedived. The boom period of real estate in India from 2005 to 2008 actually led to unrealistic valuation for the property and its stocks. However, it has fallen flat in the wake of economic uncertainty and property prices came down between 10 to 35% from the peak level depending upon the location.
The debate as to whether this is the right time to buy a property is endless since market sentiments is something that no analyst can gauge perfectly. However, the era of too fast capital appreciation in real estate, in some cases by 300 per cent, signaling a lot of liquidity and speculation in the sector seems to be over. While that may not be a good news for the builders, for the common man on a house hunt the slowdown in economy and real estate bubble burst may prove to be a blessing in disguise.