Real Estate – How will 2012 be for property buyers?

2011 – The year gone by

Consumers can expect prices to stabilize if not weaken in 2012 due to the pent up demand that this sector has.

Year 2011 was a year of great uncertainty for the real estate sector, marred by a general slowdown in new project launches, poor sales numbers and high inventory of unsold units.

New project launches in the regions such as Mumbai Metropolitan and NCR (National Capital Region) went down by 60-70% as compared to previous year.

Factors that affected real estate sector in 2011 

Both domestic and global factors kept consumers at bay in 2011.

Inflation - While inflation left consumers with less disposable income due to the increasing prices of essential goods, consistent rate hikes by RBI to tame inflation saw cost of money rise during the year, thus affecting demand for real estate in the process.

Interest Rates – Rising interest rates kept the consumers away from the property markets, as loans became costlier.

Global factors - Besides the domestic factors there were global factors too that weighed on buyer sentiment. Uncertain global economic environment, worries on both euro-zone front and a slowing US economy kept the investment risk appetite at bay.

Low Business Confidence – Investment cycle was at a multi-year low for the Indian economy. New investment proposals in 2011 were at a 5-year low, falling 45% to Rs 10.46 trillion from Rs 18.88 trillion a year earlier. Low business confidence environment led to job insecurity, especially, in the IT and Financial Services sector – that have been the main drivers for growth in the real estate in the recent years.

Considering the adverse situation in the sector buyers were expecting some price correction that did not materialize to the extent expected. In fact, after the slowdown in 2008-09, the property prices have nearly doubled in the last two years.

Year 2012

Given the non-transparent and an arbitrary pricing structure that plagues the sector, the tabling of the Real Estate Regulation Bill in parliament this year would be a huge positive for consumers. The bill seeks to give this sector a whole new legitimacy by bringing in a more accountable and transparent environment.

Year 2012 however could be a mix-bag for the sector due to the uncertain economic environment that still prevails. RBI has now indicated a pause in the rate hikes in its last policy review. The policy bent reiterates no further tightening to take place but the quantum and timing of rate cuts remain uncertain due to inflation risks that still remain.

Demand for real estate is expected to pick up in a falling interest rate regime, albeit slowly due to the uncertain economic environment. Consumers can expect prices to stabilize if not weaken in 2012 due to the pent up demand that this sector has.

Going forward, a heady cocktail of pent up demand, falling interest rate regime and an improving liquidity situation, along with the tabling of the Real Estate Regulation Bill, has the propensity to chart the real estate sector to a whole new growth trajectory.

However, were the global economic situation to worsen and the fiscal situation deteriorating on the domestic front, 2012 could see even tougher times than 2011. Time for value buying by the bargain hunters.

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