Unaffordable housing prices and a scam-ridden market have prompted investors to stay away from investing in the real estate market. Property dealers and research firms say investors are not keen to buy assets now, while those who do, are looking for suitable exits. Many are, in fact, waiting for a market correction.
Certain industry sources believe the downtrend in prices has already started and a price correction is inevitable. “Unofficially, the prices have already corrected. Some investors and developers have already exited at lower prices,” said an industry source.
Research heads from a couple of real estate research firms said the wait-and-watch approach by investors is due to awareness created by media reports on price expectations.
“There are investors who are still interested, but they are looking at projects which have all clearances in place. The number of these buyers is not very high,” said Salim Ali, property dealer Mumbai Blocks. Pranay Vakil, chairman, Knight Frank India, said slow approvals and expected delay in project completion is one of the main reasons that is keeping investors away.
“We don’t see many investors in the market looking at under construction projects in both the commercial and residential projects,” Vakil said. “If an investor enters at the under-construction level and then the project is delayed, it means higher interest costs.” Investors usually purchase a property at the under-construction level and exit close to completion at higher margins.
Vakil also links fewer investors in the real estate market to a lacklustre stock market. “Gains from the stock market are generally invested in the real estate market, but this doesn’t seem to be happening. Also, some of them are now investing in real estate funds, which are more diversified,” he said.
On the sell side, it would have been an ideal time for investors to offload assets at high prices. But the rising number of wishful sellers have not been able find suitable buyers at such high rates. Pankaj Kapoor, founder and CEO, Liases Foras, a Mumbai-based real estate research firm, explained: “Overall, we don’t see many buyers in the market. Investors will also not like to buy when the prices are high. We do expect a lot of offloading, but the sellers are waiting for a buyer.”
Added Vakil: “A good number of these investors are also land-owners who would have entered into joint venture agreements with developers, now looking to offload. This could be more prominent in the North India market.” Such land-owners typically hold a good number of flats to sell them at higher margins after completion.
A Mumbai-based dealer pointed out that investors who already hold assets are hopeful that prices will appreciate further.
“One reason for high property prices remaining high is the fact that those investors who already hold assets are unwilling to offload them at discounted prices and are not allowing developers to do the same,” said a developer.