Real estate market crash, a reality or myth?

By Pankaj Roshan :

In my earlier article, I had pointed out that corrections in the real estate sector is expected to stay, I received number of responses from readers expressing that my approach was negative towards the real estate sector. It appears the article was probably not read in the right prospective and only the heading was considered as the full article. I had expressed my views in the article captioned “Real Estate to see further corrections in coming years”, published on March 16, 2019 regarding price corrections in the real estate sector. To clarity the contextual intent, the future markets are going to be the market of the actual user and not speculator (short term investor).

A speculator is a person who puts up a very small percentage of the total value and gets out with a handsome profit in a short time. With new laws coming in like RERA and compulsory registration of documents, speculative tendency would tend to become difficult in real estate, as it involves high rate of stamp duties, registration charges, capital gains tax and lastly high brokerage fee, impacting the profit of the investor / speculator. The real estate speculator is dead and buried. One of the WhatsApp messages doing the rounds which I could immediately connect to forms part of this article. In the heading “Transmission Form” to be read as “transition stage”.

India is in transmission form 1) Car sales going down, Ola /Uber rising. 2) Restaurants are closing, food delivery increasing. 3) Tuition classes decreasing, online studies increasing. 4) Traders struggling, market place are thriving. 5) Demand is down but consumption is going up 6) Old commission business struggling, online service at low cost rising. 7) Cell phone bills going down and internet penetration going up. 8) Government job creation decreasing and start up jobs are rising. 9) Broking business is dying, low cost broker rising. Those who are unaware and those business working with old tradition are struggling. Economy is not struggling, business models are changing.

Point 9 mentioned above concerns my business directly, and as a matter of fact, has not affected me at all, as I am one of the very few brokers, who is innovative and with a RERA and GST registration. Few points which the above message did not cover are:- Airlines are losing money while aircrafts are flying at full capacity. Premium fine dining restaurants and pubs are working on full capacity. Indians are holidaying abroad as never before. Go to any place in the world today and you will see sizable number of tourists are Indians. Previously unheard of big discounts available on premium cars. Many folds increase in telephone and data usage, but the telecom companies are making losses.

Stock market is at its peak while the investors are complaining. The markets are in a state of transition with major changes taking place due to technology evolution. There are a lot of “disruptive innovations” taking place – those innovations and changes that modify and affect the current market and displace the current leaders with new innovative leaders. The sustenance therefore of businesses’ success largely depends how innovatively and efficiently the technology explosion is getting implemented and exploited. The change in business models is obvious; merger, acquisition or killing the opposition / hostile merger-acqisation is the order of the day. If you see the recent actions of companies like Amazon, Google, Jio, Oyo, Zomato you will be able to understand my view.

One of the recent inorganic market corrections is the mergers of the PSU banks in India. Private sector banks are also looking out for consolidation; don’t be surprised if a merger or acquisition of one of the leading private sector banks with over 600 branches takes place in the near future. The speculators who reaped good fruits, now feel - market has crashed. Actually this is outcome of market corrections, regulatory factors – like Rera and GST, besides economic health of the country. Just to say the real estate market has collapsed or crashed is not enough.

To understand any market, especially Real Estate, an in-depth study is important. More than ever before, an ethical, trustworthy broker / consultant’s ideas and suggestions are required while investing in real estate. Suggestions for the developer: The present day developer / builder needs to be customer friendly, which most weren’t and should invest more on preliminary research and seek professional sales advice before launching any project. The Real Estate projects which are innovative, different, and above all, value for money will always find takers. Take for the buyer / long term investor: The time for long term investors has just begun as a choice of prime properties are available at 5 to 10 year old prices, which would not be otherwise available.

Another choice available to the long term investor, are the properties which have gone into non performing assets (NPA) held with the banks and asset reconstruction companies. “Return on investment commercial properties” are available in abundance for the long term investor, giving monthly rental returns. Flats and residential properties have also never been cheaper. The Real Estate investment will always beat the fixed deposit bank interest rates as long term investment, with a horizon of five years. take for the seller: The seller needs to take solace in the fact that, if he needs the money or the property is not in any major use to him, then it’s a win-win for him too. Actually replacement cost of property needs to be considered during the high period and the present corrected prices, they remain almost identical and property prices are not going to see any upward side in the short run.

Most of us are not understanding the present day scenario and are just cribbing and cursing the markets. We as human beings do not like to leave our comfort and put in any extra effort to deal with this disruption. Answer to how to deal with such changes have long ago been answered by Dr Spencer Johnson in his international Best seller- “Who Moved My Cheese?”, having sold more than 2.6 crore copies worldwide. It is published in 37 languages, including Hindi. It is a must read in today’s prospective. Decide for yourself if it is a myth or not, as far as I am concerned I am bullish on Real Estate. (The author is a property consultant having 30 years of experience. He can be contacted at roshan@roshanrealestate.com)