The unreal ‘real estate’ in India

Our esteemed RBI Governor, Raghuram Rajan (who famously prophesied the 2008 Financial Crisis) has commented on the ‘Real Estate’ bubble in the Indian market. As a potential investor looking to buy a house myself, I would cheer him on to get the latest prediction spot on – the real estate prices have always seemed ‘unreal’ in recent times and somehow they have been ‘recession-proof’ as well since one never saw a deep correction. Sour Grapes as some may say, but I am yet to take the bait.

PS : I wear a different hat though when I look at the current price of my primary home – it never seems to have appreciated enough. (So let us talk about cognitive dissonance management now). 🙂

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Patience is key in getting your investments right and cash (Dollar in particular) is king. As a potential investor looking at buying a residential flat, I am really the small Fish in the real estate game. But yet the narrative is interesting for sure – post 2008 Financial crisis a correction (and a deep one at that)  was predicted in our markets.

Well it never quite arrived and my friends have a sanguine view that folks looking out for same are day dreaming. Well, it is cheering to know that our tribe includes some reputed minds as well and it might not be a pipe dream after all.

The real estate market is funny itself without the issue – offers get camouflaged in numerous ways. Sq. Ft gaming is all old hat – there are far more superior techniques at play. The desperate measures include catering to all our vanities – exclusivity, scarcity, buyer’s remorse, assured rental returns (for people looking at property as an investment), assured buy back schemes, no pre-EMI payment till delivery of an under construction property etc etc. You name and someone is actually offering the deal every day.

And yet the ordinary retail investor and the genuine property buyer for self-consumption seem to be far from impressed. Not convinced, well it is all there in the numbers. The inventory of unsold homes will run into years to be liquidated at the current pace of sales and of course there is a slow down in new launches as well. There are predictions that the market got it wrong entirely – instead of focussing on affordable housing for which there is a deep demand, builders have gone aspirational and tried to sell lifestyle dreams. The only sore point really is that they have got their pricing all wrong and most people who are in their target segment are not biting the bait at all. Indeed some of them have taken their aspirations abroad and invested in Dubai / London etc instead.

And the smart investors have jumped ship as they no longer see real estate deliver risk free returns and liquidity that had made it the safe haven for investments along with Gold in recent past. Am sure you have heard this one before, ‘Buy land – they are not making any more of it now’.

It is an interesting tale that unfolds – a real estate boom would be simply great news for the economy. It creates so many demands – for raw material, employment and adds so much revenue to the Government coffers as well in terms of taxes and dues. So hopefully the excesses of the past will be washed away and we may finally get the ‘real’ real estate market going out here.

Wishful thinking perhaps, but I am all for being on the wait and watch mode. I don’t mind waiting even a couple of years to see this story play out. There is another theory about famous soothsayers – that they get 1 big prediction right but their follow-up predictions don’t quite measure up. Indeed not many of them have been able to build a perfect track record – surely modern economics is so complex that expecting it to happen is quite improbable so to say. Well let the odds be against me and Rajan on this one but I am betting on it all the same. And at the end of it, if my hunch is correct, I won’t be the one walking away disappointed and muttering, ‘Sour Grapes …’.

Credit: Prakash Singh Courtesy: Getty Images
Credit: Prakash Singh
Courtesy: Getty Images

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