The country is currently in the grip of election fever. The general elections will begin in a few days. Expectations are high that a new government will usher in much needed economic reforms. Even stock market participants have been caught up in this sort of thinking. The idea seems to be that certain sectors like infrastructure and manufacturing will benefit the most from these reforms. If there is one sector that should ideally benefit the most in case there is a revival in infrastructure it is the real estate sector. However, betting on these stocks now or investing in property on the hopes a change in government may prove to be a big mistake.
As per an article on moneycontrol, elections and the real estate sector are intricately connected. The connection is a result of electoral financing provided to political parties by developers. In other words, real estate developers are expected to provide funds for the election campaign. This is being witnessed this time around too. A huge amount of black money is being pumped into the election campaign of various parties by developers. This has caused a serious liquidity problem in the sector.
The industry was already reeling under multiple problems. Demand has been falling and genuine home buyers are largely absent from the market. To add to this, regulatory issues have been on the rise and due to this, there have been several delays in project clearances. To cap it all, the Reserve Bank of India (RBI) has resolutely refused to lower interest rates and this has acted as a deterrent for the potential marginal home buyer. The RBI has also made the conditions for restructuring loans of real estate developers very tough. In such a situation, when the demand for money has been made by politicians, many developers are selling off some part of their inventory at below market rates.
Does this mean that property prices will come down soon, making real estate an attractive investment option? This is unlikely. As the article points out, election results do not lead to any major price movements in the real estate market. Major factors that influence prices will continue to remain the same. Factors like transparency, project clearances, and the growth in employment as well as improvement in infrastructure are all more important than elections. It would be wise for the genuine home buyer not to get carried away by the promise of higher property prices. Buying a home is one of the most important financial decisions that one can make. It must not be made in haste.