An interesting tussle in real estate sector

Tue, 18 Oct Pre-Open

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All the time, we heard that the price of an object is determined primarily by the demand for the object relative to the supply. However, if you look at the property prices in the big cities such as Mumbai, Delhi and Bangalore, the theory seems to be failing. According to the experts in the real estate market, at present there exists very little demand for the properties. Despite this, the prices are not softening. Instead, the developers are making all efforts to hold on to the high property prices.

In the light of the tepid demand, the buyers were expecting a sharp correction in the property prices. They were also looking for a good discount in the current festive season. However, offers present in the market do not seem to be meeting these expectations at all. In the name of discount, the developers are offering some freebies such as electronic items or holiday packages. They are also offering group discounts. However, all this is way below the expectations of the buyers.

The uncertain economic environment seems to be dampening the buyer's mood as well. Interest rates are picking up. Buyers are refraining from taking loans at the prevailent high interest rates. The uncertainties in the job market are also adding to the woes. People are not very confident of their jobs. Therefore, they do not want to take on the burden of high Equated Monthly Installment (EMIs) at this moment. All this is hurting the demand in a big way.

Then why are the developers holding on to the high prices? They are doing so as they betting on the festive season for an uptick in the demand. In this season, Non-Resident Indians (NRIs) generally tend to visit India. And these NRIs tend to buy properties during this time. Therefore the developers are thinking that this would boost the demand. Any spike in demand would help them hold on to the high prices in the future as well.

This makes it an interesting tussle between property buyers and real estate developers. Who will win? Only time can answer. However, one thing is very clear that all this is hurting the real estate sector as a whole. The way inflation is persisting, it is very unlikely that interest rates would come down anytime soon. Other short term macro-economic indicators do not look very promising either. Therefore, demand would continue to remain bleak.

As a result, bad days for the real estate sector may continue for some more time.