Indian real estate: is this the right time to invest?

Is this a good time to buy property in India? A lot of people would be interested in knowing the answer after watching realty prices in India grow like there is no tomorrow for last 2-3 years. Some of them must have missed the bus, and would love to buy low now and be part of another boom period. But will it happen any time soon?

Here are some of the important factors that might help you making the decision -

Real estate cycles are long - Unlike some of the quickly adjusting markets, property markets take longer period. The simple reason is that real estate inventory cannot be adjusted so easily…a building takes some time to build, and it’s generally not worth it to leave a half built building as is. So, if you have a horizon of 5 years, you might very well be required to stretch it to 7 years depending upon several market conditions at the time.

Transactions dry up when cycle goes low - Unlike perishable commodities, a seller can choose not to sell a property for a couple of years for a better price. So, price is not the only factor that’s affected. The willingness of people to sell also gets affected. So, finding a good resale property at a good price where seller and buyer both are happy remains hard.

Micro factors remain crucial - As Rama Bijapurkar has said, India has always been a heterogeneous country. We can’t generally paint all cities / states in India with same brush. For example, Chennai, Goa and Delhi NCR are significantly different from each other in terms of price levels, cyclic corrections, speculative activity, amount of foreign money involved, legal nuances and so on. The markets that have higher percentage of speculative activity, like Delhi NCR, rise fast and correct heavily, so potential loss as well as gain is higher.

Investment or self-stay? - If one needs a home for staying, he needs to focus more on affordability, property location, amenities and personal financial situation more than the potential price gain as the gain is likely to remain unrealized. Home loan interest rates is going to be an important consideration though. Inflation numbers are expected to cool down, so expect some easing out of home loan interest rates in coming few months.

What kind of property? - Land differs vastly from an apartment. It doesn’t offer cash flow (rent), but can prove to be multi-bagger. In Indian environment, land investment might be considered riskier than usual properties. Land can test your patience and you might need to wait for as long as 10 years for meaningful returns. A residential property is entitled for home loan and perks like income tax rebate on principal and interest of that loan, whereas a land doesn’t offer this value proposition.

Price negotiation - As of now, the advertised price can definitely be negotiated more than it could have been 6 months ago. Developers need liquidity right now, and they are more willing to listen and let go some of their margins. Just try to visit a good scheme and see how much they are willing to negotiate rather than relying on advertised prices.

Exchange rate - Dollar and rupee are playing yo-yo since last year. After touching highs of 38, rupee is right now at around 47. This is a crucial factor for NRIs and on site IT professionals looking to invest in home country, and right now can be a good time to convert that greenback!