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Residential real estate sector a favorable asset class going forward

November 26, 2010 Leave a comment

 

Residential Sector: The residential sector has proven to be the most resilient through the ups and downs of the previous financial crisis and the slowdown thereafter. Most of the demand drivers for real estate in India eluded to in the above paragraph such as rise in income levels, nuclearization of families, penetration of cheap home financing (yet no where near sub-prime conditions as was witnessed in parts of the western world) etc. are actually playing out in reality across various Tier I and Tier II cities in India. According to market data from PropEquity, almost 90% of all residential product that is built across major Tier I and Tier II cities in India (including Mumbai, NCR region, Chennai, Bangalore, Calcutta, Hyderabad, Pune and Ahemdabad) is sold. Furthermore almost 65% of all residential product that is currently under construction has also been sold (pre-sales)! Such high levels of sales and absorption bear testimony to the fact that the investment opportunity in the Indian residential real estate sector is actually quite real and will most likely continue as long as the demand drivers remain intact. Ofcourse, pricing does tend to be cyclical in nature as typically whenever sale volumes increase, developers leave no stone unturned in raising their prices. Subsequently, a noticeable increase in price then deters the home buyer from making purchase decisions leading to a decrease in sale volumes. And finally once developers realize that their sale volumes have dried up, they reluctantly drop their prices or offer clever financing schemes to lure the aspirant home buyer thereby once again kick starting the buying frenzy. While such cyclical movements in prices will continue to play out in the future as well, structurally atleast, the residential real estate sector in India will remain a favorable asset class going forward.

Excerpt from : Reality Check and Assets Classes for the future (25/11/2010) - VCCircle
http://www.vccircle.com/500/news/reality-check-asset-classes-future