Home loan rates are rising. Cost of raw materials is also on the rise. How significant is this rise for property buyers? Do you see any impact on the decision of prospective buyers?
The effect of increase or decrease in home loan rates largely depends on the nature of the property buyer. Actual users may not be significantly affected by short-term changes in rates as they are guided by many other important factors, primarily family needs, location and environment. However, investors or speculators are likely to take some guidance from the movement of interest rates to evaluate a property purchase as they are out to make quick returns.
Increase in cost of raw materials will definitely affect property prices as developers will pass on the higher construction cost to buyers. This would affect the affordability, particularly in the lower and mid market segment, where budgets are tight.
Do you expect any correction in the property market in the short term?
Some micro-markets within tier I cities have witnessed unreasonable price increases in the last few months. In some cases, the price rise has been more than pre-recession levels. These markets are likely to see some short-term corrections. However, the overall economic outlook is positive and there is a general sense in the world economy that the worst is over. These sentiments will percolate down to the real estate market as well, perhaps negating the correction over a period of time. The flip side is that in large ticket- size projects, finding buyers becomes difficult.
People have taken properties in certain locations in the hope of futuristic pricing and development. However, projects are languishing because of general cash constraints with developers who over stretched themselves... In such areas, buyers may suffer on account of a large correction in prices.
What is the status of commercial real estate, including office space, retail space and warehousing? Is it a good time to invest in these categories?
It is difficult to time the market and hence any real estate property (commercial or residential) should be evaluated. People looking to own small commercial spaces may not get good or consistent returns. I would advise them to go slow. Larger commercial real estate prices are not likely to rise rapidly except in places where the space is ready-to-use. For instance, Bandra-Kurla-Complex in Mumbai or a Jasola in New Delhi or Gurgaon. Also, corporates are now looking at creating REIT (real estate investment trusts) model for regular returns; you will probably see more and more developers leasing out larger spaces to high-end users on a built and transfer model, rather than selling spaces unless they have to.
Can growth in commercial realty be a reflection for growth in residential real estate? Or is it the opposite? Is there some kind of corelation?
Commercial and residential real estate have a high corelation as one segment affects the other. Growth in commercial real estate is surely expected to have a positive impact in residential real estate, especially in micro-markets surrounding the commercial sector. For instance, at Gurgaon in NCR, Whitefield in Bangalore and Gachibowli in Hyderabad, commercial developments were soon followed by residential activity. Commercial real estate brings with it infrastructure and economic growth. People working in commercial zones generally prefer to stay nearby. This is a correct phenomena and has to be replicated in India to improve efficiency and work life balance.
What factors should one look at while investing in property?
Any property in a good area that satisfies various investment parameters of the buyer should be evaluated as it is difficult to time the market. Apart from looking at historic appreciation trends in the area, one should also consider potential future developments, such as an upcoming Metro line or a ring road.
Devesh Chandra Srivastava