Ever since the beginning of the year 2023, the real estate industry stakeholders are going gaga with the narrative of a turnaround year. It is not that such misplaced optimism has not hurt their cause in the past, but the leading voices of the sector seem to believe that a false narrative would goad the home buyers to make a beeline at the sales office. The industry narrative is hence tilted towards what could easily be vouchsafed as misplaced optimism.
Some of the oft-repeated narrative, that sound more self-congratulatory messages are:
This is the beginning of a bull run of Indian real estate
The home buyers are increasingly upgrading to bigger houses
Work from home has made even the holiday homes turn to primary residential market
With prices at the rock bottom this is the buyers’ market
Choices galore for the home buyers, with ready to move inventory easily available
Property rates set to increase if one doesn’t buy the house now
The increasing wealth of Indians is fuelling demand for luxury homes
India’s real estate market has always been a preferred option among High Net Worth (HNI) investors from foreign countries
Non-Resident Indians (NRIs) are taking advantage of dollar appreciation
The moot point at the beginning of year nevertheless is to what extent this misplaced optimism would convert into a reality. The ground report is juxtaposed to the influence peddling of industry stakeholders in the media. What predominantly drives the housing market in any part of the world is the bullish job market. And it is here that the Indian home buyers seem to be concerned enough to not make any commitment to their life’s costliest purchase.
Facts speak for themselves:
Unemployment rate of 8.30% is near all-time high, as per CMIE data
Global giants like Google, Microsoft, Amazon, Twitter, HCL et all are laying off employees
Cautious outlook of global IT giants indicates rough ride ahead in the Indian job market
Reduced flows of IT/ITeS work outsourced to India and further layoffs could lead to distress sale
An imminent US recession in 2023 to impact housing demand in India
Salary cut is a grim reality in many of the industries
Foreign investors are exiting the Indian investments
Domestic private investment levels have remained consistently low and so has (domestic) manufacturing growth
Industries across the sectors are way below their capacity utilisation
Global slowdown seem to affect the Indian market as well
Developers not able to hike prices despite of steep hike in the input cost
Does this all indicate a booming housing market ahead by any stretch of imagination? The industry stakeholders might be having their own reasons to parrot a booming housing market narrative. One of the leading voices of real estate sector privately admits that this is a challenging year. According to him, even though the input cost has skyrocketed the developers have no choice but to offer discount sale as many of them are sitting over huge inventory and the interest burden is hard to bear.
“It is like Union Budget where every year the industry comes out with many oft-repeated demands, as if the budget has repeatedly ignored the sector. But post budget we are left with no choice but to concede that this has been a historic budget. Similarly, whatever be the market conditions, we are always hoping against the hope and all unpleasant writing on the wall is left for final cost & benefit analysis,” says the developer while requesting anonymity.
Misplaced optimism of the developers apart, the home buyers have many questions to ask before they could think of any commitment to buy a house:
Is my job stable and incremental growth on the cards?
What if I lose my job in this year of mass layoff across the businesses?
Will I be able to serve the EMIs if I have to deal with a salary cut?
Will interest rates continue to rise in the foreseeable future?
How to manage the fixed monthly expenses if inflation continues to rise?
Will the house price beat the inflation in the short to medium term?
Needless to say, when a home buyer does his own cost & benefit analysis, the odds are heavily loaded against buying a house. No one within the built environment of Indian real estate would deny the fact that the new launches would remain timid this year as there is a huge standing inventory waiting for the buyers. Also, hurt by the slowdown in demand the property rates have not increased in the last few years.
As a matter of fact, if one adjusts the house price with inflation there has been degrowth in the property prices. Developers, in their own make-belief world, do not see much cause for concern. For them, it is their misplaced optimism that promises to act as the tailwind. They are cheering 2022’s record performance and remain upbeat for 2023. The home buyers are anyways keeping their fingers crossed.
This brings to the fore the most critical question as to who should buy a house in today’s uncertain economy. My market assessment is that one should commit for life’s costliest purchase with a long commitment only if:
The house is for the self-use and not for investment
The cost of the house is not more than 4 years of gross income
One’s job is stable with growth prospects in the foreseeable future
One has the capacity to pay 40-50% upfront before the mortgage
One is not finding a better deal in the distressed secondary market
One can manage a year or two in the unfortunate event of job loss or salary cut
The debt to income ratio is not more than 30-40% of the take home salary
Needless to say, not many Indians are in the above narrated comfort zone to buy a house today. And hence, the housing market seem to be up against another challenging year, notwithstanding the misplaced optimism by the large universe of the industry stakeholders.
Ravi Sinha
CEO, Track2Realty
+91-9650634343
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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