Property prices across cities in India have increased fourfold in last decade. But the past trends do not always hold good in future. The real estate market has been faltering for quite some time. A host of factors are the reasons for this. These include unaffordability, low yields, and sellers holding on to prices, coupled with economic & political uncertainty.
We at Equitymaster have often expressed our skepticism about the real estate players many times in the past. The Indian property market lacks enough regulation, professionalism, transparency, and has complex process. Such issues have been ruling the roost of Indian real estate sector. Not to mention the rising speculative activity and black money transactions thriving in this sector. Over and above, bureaucratic delays which create artificial scarcity have been an equal culprit.
As per Business standard, the years 2011 and 2012 witnessed sharp rise in the property prices keeping the buyers out of the market. Even the years 2013 and 2014 have seen some price rise which has further turned off investors' interest. Mumbai has around 2 lakhs unsold homes (as on December 2014). Further, the article highlights, according to PropEquity (a real estate research firm) barring Bengalaru, the absorption of homes has been lowest in the top six cities in India during 2014. The inventory pile up will take on an average 7 to 14 quarters across various cities to sell these houses.
The real estate sector has been under pressure for a while. A prolonged era of unaffordable prices has already started impacting the volumes of most real estate companies. Therefore, if the developers wish to blame anyone for their woes, then they need only to blame themselves. Rather than running behind the huge margins that they enjoyed earlier, it would be better to cut rates and increase sales. The key to better prospects for the sector is rational prices. This can free the sector from the disdain of investors.