Do you also think that real estate prices are primed to fall?
Many will argue that Indian demographics is going to come to the rescue of the developers and investors who are hoping to make a quick gain on current real estate rage in India. We have a young population and we are an economy with tons of potential, they say. And, when these two things come together, we have a rosy scenario of higher incomes, higher purchasing power and hence rising demand for new housing. Some people also throw in NRIs and shady politician money into the mix to establish their case.
However, there are problems.
Number one problem is, although we do have lot of young graduates passing out of colleges every year, but we do not have jobs for them. For every one engineering job available, there are roughly 17 aspirants. See here, here and here.
That’s a huge gap! And that’s just engineering I am talking about. Millions other graduates are facing frustrating job markets these days. We will soon have unemployed or underemployed graduates who will be working below their potential and be less productive in what presumably considered best years of employment. That will lead to lesser confidence and lower ability to afford prices at current levels.
We can rule out politician’s illicit money with elections heading our way. None of us are stranger to the fact that billions of rupees being spent on elections every five years. I expect less of real estate buying will be coming from our netas, in fact we may see some unwinding.
Talking about NRIs, they might consider rupee stability before rushing to invest in Indian real estate. If you have been following recent swings in our currency, you would be aware that anyone investing would think twice and may choose to wait for better bargain (in case he/she believes expert opinion of rupee touching 70 in near term). Trust me, it is not easy decision to invest when your $100,000 can buy a 55 lakhs worth of house one day and 65 lakhs the another.
So, we come back to our original question. When Mumbai has unsold inventory of 48 months and Delhi NCR has 31 months, why the real estate prices not falling?
Why real estate prices are not falling when demand is diminishing and there is all gloom and doom in job markets?
Or the real estate prices are falling and our brokers and experts are lying to their teeth when they claim that housing prices never have and never will decline in this country. Well, same thing was told to gullible investors in Japan in 1980s, US in 2005, but we know what happened there.
But if do not trust our developers, brokers or experts for pricing data, who should we trust, you ask. The answer is of course no one. Everyone out there has an incentive to make you trade/invest/buy more so that they can unwind/sell their inventory or make some neat money on commissions. Only some impartial agency which collect and maintain some sort of real estate prices database can help us here. National Housing Board (NHB) is one such agency. NHB releases an index, called NHB Residex, of real estate price changes in tier I and tier II cities. Although it is a broad based index, meaning you cannot expect it to tell you whether Delhi NCR price decline means price decline in South Extension or Rohini or Gurgaon or Greater Noida. Nevertheless, it still can be used as guidance or a tool while making an investment decision.
For benefit of my readers, I am charting out latest NHB residence index data. You will very well see here that prices have declined in 22 out of 26 cities under survey in last quarter.
And no, this case is not an aberration. NHB has been recording fall in prices in major locations across the country for several quarters now. I’ll close the post with this chart that clearly goes out to bust the myth of “housing prices never fall”.
