You are here: Home » Punditry » Beyond Markets
Business Standard

Real estate is dead, long live real estate

Why the impending shakeup in real estate is actually a good thing

Anupam Gupta 

Anupam Gupta


Everyone has a strong view on India’s residential market. Currently, most people expect prices to crash. I disagree. I believe that while prices will – at worst – continue falling. I don’t think they will ever crash overnight to a panic-led collapse. is going through a painful business down-cycle, which will also end at some point of time. Those expecting an overnight crash any time soon will be disappointed. Here’s why: 

1. Too big to fail:
There are simply too many vested interests in to allow it to slip into panic-led chaos. Politicians, real-estate developers, banks, NBFCs– all of them have too much at stake. Then there are hard-working, salaried employees paying EMIs. This is an industry which reaches a majority of India’s population. Like Wall Street in the USA, India’s industry is too big to fail. At worst, it might see a Lehman-like moment. A few builders will vanish but, as Wall Street figured out, a few casualties – like a Lehman or an AIG – are acceptable collateral damage in the overall scheme of things. But the Government will cobble together a bail-out of sorts. Builders will be rescued, homes will be saved. 

2. The fall has already begun:
The Reserve Bank of India’s (RBI) all-India Residential Property Price Index (Base = FY09-10) shows that the dizzying ascent in home prices is already reversing at a rapid pace. In two years, the rise in home prices has fallen to 4% in 3QFY15 from a high of 28% in 3QFY13. In fact, 3QFY15 saw declines in home prices in cities like Mumbai (-3%) and Chandigarh (-8%). This might not be much, but do remember that is an illiquid asset where prices can take years to correct. This process has just begun and will – surely – at some point end. Home prices will bottom out. 

All India Residential Property Price Index

       


3. The India Growth Story:
Only a third of India is urbanized and Prime Minister Narendra Modi has ambitious plans for building smart cities. These are potent drivers for home demand over the longer term. Sustained GDP growth cannot leave behind for long. is at the core of infrastructure development and will respond to these positive changes over the longer term. We’ve seen it play out before: The IT boom in Bangalore and Hyderabad, the BFSI boom in Mumbai, the decentralization of Central Business Districts and expansion of peripheries (Navi Mumbai, NOIDA, Gurgaon). This cycle will play out again when economic growth picks up. When it does, we will see new infrastructure, new cities and the demand created by these will have a positive impact on home prices. 

v2.0…
The transformation in has already begun. Sure, you can’t get rid of black money in overnight. But the rise of salaried class as home-buyers has forced some builders to accept payments in “full white”. In financing home loans, Banks and NBFCs have aided a move towards transparency in the process of owning a home. This is a huge change from the past where the salaried class would raise funds from friends and families to buy a house and still not be assured of a clear title.  Today, agreements are registered and soft copies in CDs accompany registration papers. 
Upcoming changes like Investment Trusts (REITs), appointment of an industry regulator will add to opening up the sector and improving transparency levels. All of these will go a long way in overhauling the industry. 

…will shake down the current cartel
India’s today reminds me of the pre-Harshad Mehta, early 90s days in the stock market. A private club owned, operated and gamed by a few strong players in connivance with the authorities to manipulate prices at will. It took years – and more than a few scams and crashes – for this old order to change.  It took the birth of SEBI, opening up the sector to domestic and foreign investors, overhauling corporate governance and many more changes to bring us where we are today in capital markets. 

will follow a similar path. If a few collapses and crashes do happen along the way, I’d be happy to be proven wrong because these crashes will eventually improve the sector. Like stock market crashes, any crash will also provide opportunities for investment. And I’m willing to bet that the new, new in 2025 will be very different and much better than what we see today.

Anupam Gupta is a Chartered Accountant and has worked in Institutional Equity Research since 2000, first as an analyst and now as a consultant.
He contributes to the Business Standard platform, Punditry through his blog, on markets & the economic horizons.
He tweets as @b50

First Published: Fri, August 21 2015. 08:30 IST
RECOMMENDED FOR YOU

Real estate is dead, long live real estate

Why the impending shakeup in real estate is actually a good thing

Why the shakedown in real estate is a good thing and why an overnight crash any time soon may not happen

Everyone has a strong view on India’s residential market. Currently, most people expect prices to crash. I disagree. I believe that while prices will – at worst – continue falling. I don’t think they will ever crash overnight to a panic-led collapse. is going through a painful business down-cycle, which will also end at some point of time. Those expecting an overnight crash any time soon will be disappointed. Here’s why: 

1. Too big to fail:
There are simply too many vested interests in to allow it to slip into panic-led chaos. Politicians, real-estate developers, banks, NBFCs– all of them have too much at stake. Then there are hard-working, salaried employees paying EMIs. This is an industry which reaches a majority of India’s population. Like Wall Street in the USA, India’s industry is too big to fail. At worst, it might see a Lehman-like moment. A few builders will vanish but, as Wall Street figured out, a few casualties – like a Lehman or an AIG – are acceptable collateral damage in the overall scheme of things. But the Government will cobble together a bail-out of sorts. Builders will be rescued, homes will be saved. 

2. The fall has already begun:
The Reserve Bank of India’s (RBI) all-India Residential Property Price Index (Base = FY09-10) shows that the dizzying ascent in home prices is already reversing at a rapid pace. In two years, the rise in home prices has fallen to 4% in 3QFY15 from a high of 28% in 3QFY13. In fact, 3QFY15 saw declines in home prices in cities like Mumbai (-3%) and Chandigarh (-8%). This might not be much, but do remember that is an illiquid asset where prices can take years to correct. This process has just begun and will – surely – at some point end. Home prices will bottom out. 

All India Residential Property Price Index

       


3. The India Growth Story:
Only a third of India is urbanized and Prime Minister Narendra Modi has ambitious plans for building smart cities. These are potent drivers for home demand over the longer term. Sustained GDP growth cannot leave behind for long. is at the core of infrastructure development and will respond to these positive changes over the longer term. We’ve seen it play out before: The IT boom in Bangalore and Hyderabad, the BFSI boom in Mumbai, the decentralization of Central Business Districts and expansion of peripheries (Navi Mumbai, NOIDA, Gurgaon). This cycle will play out again when economic growth picks up. When it does, we will see new infrastructure, new cities and the demand created by these will have a positive impact on home prices. 

v2.0…
The transformation in has already begun. Sure, you can’t get rid of black money in overnight. But the rise of salaried class as home-buyers has forced some builders to accept payments in “full white”. In financing home loans, Banks and NBFCs have aided a move towards transparency in the process of owning a home. This is a huge change from the past where the salaried class would raise funds from friends and families to buy a house and still not be assured of a clear title.  Today, agreements are registered and soft copies in CDs accompany registration papers. 
Upcoming changes like Investment Trusts (REITs), appointment of an industry regulator will add to opening up the sector and improving transparency levels. All of these will go a long way in overhauling the industry. 

…will shake down the current cartel
India’s today reminds me of the pre-Harshad Mehta, early 90s days in the stock market. A private club owned, operated and gamed by a few strong players in connivance with the authorities to manipulate prices at will. It took years – and more than a few scams and crashes – for this old order to change.  It took the birth of SEBI, opening up the sector to domestic and foreign investors, overhauling corporate governance and many more changes to bring us where we are today in capital markets. 

will follow a similar path. If a few collapses and crashes do happen along the way, I’d be happy to be proven wrong because these crashes will eventually improve the sector. Like stock market crashes, any crash will also provide opportunities for investment. And I’m willing to bet that the new, new in 2025 will be very different and much better than what we see today.

Anupam Gupta is a Chartered Accountant and has worked in Institutional Equity Research since 2000, first as an analyst and now as a consultant.
He contributes to the Business Standard platform, Punditry through his blog, on markets & the economic horizons.
He tweets as @b50

image
Business Standard
177 22

Real estate is dead, long live real estate

Why the impending shakeup in real estate is actually a good thing


Everyone has a strong view on India’s residential market. Currently, most people expect prices to crash. I disagree. I believe that while prices will – at worst – continue falling. I don’t think they will ever crash overnight to a panic-led collapse. is going through a painful business down-cycle, which will also end at some point of time. Those expecting an overnight crash any time soon will be disappointed. Here’s why: 

1. Too big to fail:
There are simply too many vested interests in to allow it to slip into panic-led chaos. Politicians, real-estate developers, banks, NBFCs– all of them have too much at stake. Then there are hard-working, salaried employees paying EMIs. This is an industry which reaches a majority of India’s population. Like Wall Street in the USA, India’s industry is too big to fail. At worst, it might see a Lehman-like moment. A few builders will vanish but, as Wall Street figured out, a few casualties – like a Lehman or an AIG – are acceptable collateral damage in the overall scheme of things. But the Government will cobble together a bail-out of sorts. Builders will be rescued, homes will be saved. 

2. The fall has already begun:
The Reserve Bank of India’s (RBI) all-India Residential Property Price Index (Base = FY09-10) shows that the dizzying ascent in home prices is already reversing at a rapid pace. In two years, the rise in home prices has fallen to 4% in 3QFY15 from a high of 28% in 3QFY13. In fact, 3QFY15 saw declines in home prices in cities like Mumbai (-3%) and Chandigarh (-8%). This might not be much, but do remember that is an illiquid asset where prices can take years to correct. This process has just begun and will – surely – at some point end. Home prices will bottom out. 

All India Residential Property Price Index

       


3. The India Growth Story:
Only a third of India is urbanized and Prime Minister Narendra Modi has ambitious plans for building smart cities. These are potent drivers for home demand over the longer term. Sustained GDP growth cannot leave behind for long. is at the core of infrastructure development and will respond to these positive changes over the longer term. We’ve seen it play out before: The IT boom in Bangalore and Hyderabad, the BFSI boom in Mumbai, the decentralization of Central Business Districts and expansion of peripheries (Navi Mumbai, NOIDA, Gurgaon). This cycle will play out again when economic growth picks up. When it does, we will see new infrastructure, new cities and the demand created by these will have a positive impact on home prices. 

v2.0…
The transformation in has already begun. Sure, you can’t get rid of black money in overnight. But the rise of salaried class as home-buyers has forced some builders to accept payments in “full white”. In financing home loans, Banks and NBFCs have aided a move towards transparency in the process of owning a home. This is a huge change from the past where the salaried class would raise funds from friends and families to buy a house and still not be assured of a clear title.  Today, agreements are registered and soft copies in CDs accompany registration papers. 
Upcoming changes like Investment Trusts (REITs), appointment of an industry regulator will add to opening up the sector and improving transparency levels. All of these will go a long way in overhauling the industry. 

…will shake down the current cartel
India’s today reminds me of the pre-Harshad Mehta, early 90s days in the stock market. A private club owned, operated and gamed by a few strong players in connivance with the authorities to manipulate prices at will. It took years – and more than a few scams and crashes – for this old order to change.  It took the birth of SEBI, opening up the sector to domestic and foreign investors, overhauling corporate governance and many more changes to bring us where we are today in capital markets. 

will follow a similar path. If a few collapses and crashes do happen along the way, I’d be happy to be proven wrong because these crashes will eventually improve the sector. Like stock market crashes, any crash will also provide opportunities for investment. And I’m willing to bet that the new, new in 2025 will be very different and much better than what we see today.

Anupam Gupta is a Chartered Accountant and has worked in Institutional Equity Research since 2000, first as an analyst and now as a consultant.
He contributes to the Business Standard platform, Punditry through his blog, on markets & the economic horizons.
He tweets as @b50

image
Business Standard
177 22