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Why are investors, buyers shunning real estate?

In markets such as Mumbai, prices have gone beyond Rs 1.5 cr to Rs 2 cr which is beyond reach of most of the salaried class

Raghavendra Kamath  |  Mumbai 

The sharp residential property price rise in 2011 and 2012 kept buyers out of the market and marginal increases in 2013 and 2014 had turned investors off the segment, said brokerages and consultants. Home prices in the National Capital Region had risen by 22 per cent in 2012 and even a stable market like Bengaluru had seen a 15 per cent increase, according to research firm PropEquity. Hariprakash Pandey, senior vice-president, finance and investor relations, at Mumbai-based developer HDIL,said in Mumbai, home prices had gone beyond Rs 1.5-2 crore, which was beyond the reach of most of the salaried class. “If you take a loan of Rs 1.5 crore, you have to pay an EMI of Rs 1.5 lakh. For that you should have a monthly income of Rs 4-5 lakh,” he said.

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Talwar said people were preferring to buy small-ticket items like vehicles and durables to buying houses.

The inventory pile-up with developers is such that the National Capital Region will take 13.8 quarters to sell its unsold housing stock and Mumbai will take 11.5 quarters. Bengaluru needs seven quarters to sell its inventory. Talwar said luxury projects like Lodha’s World One and Raheja’s Vivaria were doing well. “Only lower rung projects are hit,” he said. According to international brokerage CLSA, home sales in the top eight cities declined by 14 per cent in 2014, while average residential property prices across the seven biggest cities rose by only 2 per cent. “This lack of capital appreciation has reduced the incentive to buy, particularly for investors, at a time when rental yields are only 2-3 per cent against the 10 per cent debt servicing cost of a mortgage,” CLSA said in a note.

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Ashwinder Raj Singh, chief executive officer, residential services, at JLL India, said investors had inventory but liquidity was low in the market. “Once that inventory starts selling in 24-36 months, things will pick up,” Singh added. According to estimates, the Gurgaon market has 65-70 per cent investors while southern and western Mumbai have 50 per cent investors.

First Published: Wed, June 10 2015. 00:47 IST
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