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Is a Boom in Real Estate Visible?
Wed, 8 Jun Pre-Open

Since a while now, the real-estate sector has shown no signs of improvement. The situation is much worse in the metros as compared to the smaller towns. Unsold inventors, in the top eight cities have risen by around 22% YoY in FY16. However, in-spite of the rise in the inventory levels, the developers have not brought down the prices. This indeed has played a part in the slowdown in this sector.

Having said that, there was a gradual pick-up in the housing demand in the first quarter of this calendar year. Experts believe that the improvement in demand is because of the improving economic scenario, lower interest rates and the newly introduced Real Estate Act (REA), 2016.

Talking a bit about the new act. If implemented effectively, REA will have a lot of positives for the buyers. Let us take you through some of the positives.

  • The state level authorities will regulate both residential and commercial transactions. It will ensure the timely completion of projects.
  • Complaints will have to be disposed of within 60 days. Developers and agents can now be imprisoned for up to 3 years and one year respectively, if they break the rules. There are many other aspects of the bill that we like.
  • Pricing will have to be done on the basis of carpet are only. And the term 'carpet area' will be clearly defined.
  • All projects will have to be registered with the regulator. No pre-launch will be allowed without all approvals being granted. Developers will have to disclose all important project details so that buyers can make an informed decision.
  • Perhaps the biggest issue that the bill has covered is the money developers have to deposit in an escrow account to cover cost of construction and land. This has been fixed at a minimum of 70% of funds collected from buyers. This will bring in much needed transparency to the sector.

While the positives from the real estate bill might have revived the confidence of buyers, a take on the revival of this sector will only depend on a sustainable growth in the housing demand. Further, lower interest rates too will play its part in assessing the demand scenario in this sector.

Moreover, a boom in the real estate sector seems to be a far visibility as of today. However, it will be interesting to see how things pan out in this space over a period of two years. As for an investors perspective on whether to buy real estate or equities, Rahul Shah, has written an excellent article stating how equities could crush real estate over the next three-five years. You cannot miss to read this interesting piece. Click here to access it.

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1 Responses to "Is a Boom in Real Estate Visible?"


Jun 8, 2016

The prices of real estate is governed by purchasing power of buyers. If economy will not be able to generate high paying jobs then real estate price will stagnate.

At present almost all the industries are struggling and banks are on the verge of bankruptcy. Even people from IITs and IIMs are unemployed. Therefore, if the current scenario continues real estate prices will fall.

Equitymaster requests your view! Post a comment on "Is a Boom in Real Estate Visible?". Click here!

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