I will break this analysis into two sections. In the first section, I will talk about the driving factors of this bull run and in the later phase, I will recommend points to keep checked before booking your unit.
You must have got news stating that an ultra luxury project was sold out within 48 hours or so. What are the factors which are causing this bull run. Lets discuss it:
Virtual Closure of the Deals:
After covid, there has been a jump in virtual bookings. People are able to understand the locality (or at least they think so) and product through the presentation of builders and with the help of google maps. Before covid, people used to travel to the city which they are investing in, after visiting the land parcel they take a call whether they should go ahead with the booking. And on the next launch they used to visit again. Along with this there were multiple dependencies on the family members. This was causing delays in closure of deals. Delays give investors time to think and analyze deeply. This leads to a better informed decision comparatively. With the virtual presentation, all stakeholders can sit together on a call to understand the project. This is a brighter side for builders. They are now able to drain their inventory quicker.
The Short Term Investors:
The market has given good returns especially after covid to the investors. Even the long term investors got greedy and sold their holdings without researching where to make the next investment. This has also attracted new gentry who are willing to make some money by entering into real estate deals for a short term. This is a risky game to play if you don’t have holding power and funds to meet the builders demand.
Few Launches in Recent Years:
The market hasn’t witnessed good luxury projects in recent years. That’s why when DLF came up the Arbour in the first quarter of 2023, it was a great success. The covid had pushed the families for more bigger and luxurious houses. So the demand was there but no supply. This has further facilitated a good appreciation to short term investors and has attracted more of such kind.
External Factors:
Let’s discuss some external factors which are causing this boom in luxury housing demand.
- Interest Rate Hike in Foreign Countries: There has been a 30%-50% interest hike on loans, in particular, I am concerned about Housing loans. Now it’s not that affordable for middle class NRIs. You must have heard housing getting costlier in cities of UK, Canada and EU. The housing in these countries wouldn’t be affordable to the middle class any soon. So why am I talking about it, because it has repercussions. NRIs are finding the Indian market more affordable.
- Packaging and Presentation: The current govt has worked a lot on their image in western media. The prime minister has a 56 inch chest and all. In recent years, leaving India was considered to be the greatest achievement but now we can see reverse migration happening especially from countries like EU and Canada. So the NRI are investing for their home in India when they return.
- Stable Govt: The central govt is more stable which is attracting more foreign investments in india not only in the equity but also in real estate.
Let me add another point here, being a NRI you should invest in India if you don’t have plans to sell this property. Because liquidating it and converting it to foreign currencies will eat up the returns. And it is better if you already own a property in the country you are living.
The Aspiration:
The families who are living in builder floors of Gurgaon and Delhi have aspiration to shift to these condos for better lifestyle and community. Typically these families have a budget around ~4cr.
So now comes the point: is it sustainable?
With the above factors, yes. It seems this bull run will be continued having couple of risk factors like the short term investors
Why there are less launches in budget segment:
Builders are facing challenges in selling property of ~1.25cr due to its target gentry and affordability. The interest rates are high only those inverters who are willing to liquidate their existing assets have affordability to invest. We will discuss this some other day in detail.
We have understood the factors, now let’s talk about what are the things which you should keep in mind if you are looking to invest in the bull run market.
The market is at an all time high. That doesn’t mean one can’t get a good deal, sticking to the basics and a thorough research will surely award the better deals. I don’t see these rates getting corrected any time soon and if you need real estate for end use and you are looking for it as an investment for a longer horizon you must invest. Real estate has a bigger cycle and as it is a commodity the real estate will not collapse at least in India. Last bull run was around 2013, the investors who went with a good and clean project, got good returns. I agree, the prices can get stagnant for 5 years or so but it wouldn’t be affordable for most of the Indians. So it is wiser to invest.
Following are the points which one should use it a checklist to make their investments:
- Book only if you are getting your preferred unit, type and locality. Brokers and closing managers will try to push you for upgrading type so that they can drain their less preferred inventories. This can cause you additional financial burden. This is not a good time to stretch your budget. One should only compromise on these points only if it is a buyers market.
- Visiting the land parcel physically. The virtual representation always fascinates and being dependent on virtual maps would get you the actual reality of the project and site. I have seen multiple investors complaining about the site when they visit it physically after six months or so and then they wish to cancel the unit or go for the resell.
- The resale market was good until 2023 but there are many short term investors who have got into the market, most of them don’t have funds to meet the demand. They will make their exit on a compromised value, we call it a distressed deal. Don’t go for the short term.
- Choose the right builder, a reputed one, if it is a local builder operating in that city for a long time, it will be better. They will give you a better deal because their cost of the project will be far less than to the builders who are comparatively newcomers in that city. Not only because of the cost of land but also because they have less subcontractors.
- Identify the queue showoff and don’t fall for that. Nowadays builders are trying to be in the media for free publicity(should I call the paid one?) by showing off the sales and timelines. The fact is to sell any product in 48 hours, it takes at least 60 days of effort from their brokers. And in most cases, there remains a lot of unsold inventories.
- Choose the right broker. A bigger brokerage firm will be able to help you in securing your preferred unit and they will later help you with the resell. In general, brokers wouldn’t be interested in selling your unit in resale because the direct market is much easier for them to deal with. They just need to make an investor walk into the lobby of the builder, that’s it the work is done. Understand this resell risk, especially during the under-construction period.
- The home loan interest rates are high, don’t make your investment totally dependent on the loan. Loan amount should be 55% for under construction and 70% for ready to move in property.