Stock market decline may dent realty prices

Stock market decline may dent realty prices

Mumbai: Raja Kohli’s dreams of buying a house in the National Capital Region’s Noida area could come a cropper, given the current slide in the stock markets. Kohli had invested in the equity markets, hoping to reinvest the profits from his stocks portfolio in a dream house.

But these profits have been looking much slimmer now. Between 10 January—when the Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, hit a record high—and now, the index has lost 18.27% in just 10 trading sessions.

BSE’s Realty index has lost 28.25% in the same period, closing at 9,520.84 on Tuesday, from 13,270.05 on 10 January.

“I was planning to buy a three- to four-bedroom house to accommodate my parents and my family in Noida," Kohli said. “I had been investing in the stock market for more than a year. But the market crash of the last 10–12 days brought down my profits significantly. I have no choice, but to put my plans on hold."

Real estate analysts say there may be many potential homebuyers such as Kohli who have been caught by the stock market slide.

“About 20% of the property market is retail investors who plough back profits from stock market into real estate," said Anuj Puri, chairperson, Jones Lang Lasalle Meghraj, a property consultant firm. “It is these people who have been caught by the market crash."

The stock market crash will certainly affect sentiments in the Indian property market, said Pranay Vakil, chairperson, Knight Frank India Pvt. Ltd, another property consultant.

“We expect that many potential home buyers will now hold back on the assumption that the property markets will also follow the stock markets," Vakil said. “We will see far fewer transactions in the coming weeks unless the stock market stages a spectacular recovery. This, in turn, could result in a fall in the prices of property, especially residential properties." The residential segment accounts for nearly 80% of the country’s property market.

Stock analysts say the stock market crash will lead to correction in property prices.

“Since investors generally tend to move their assets across classes, the loss in one asset class will definitely affect other asset classes too," said Shailesh Kanani, a real estate stock analyst at Angel Broking Ltd, a Mumbai-based stock broking firm. “Traditionally, assets such as real estate and gold have seen corrections whenever the stock market has crashed. We expect that to happen this time too."

Vakil said other fallouts of the stock market crash would be a correction in land prices and in the prices of information technology (IT) parks and residential properties around them. “If the US economy goes into recession, the demand from this sector would be affected seriously," Vakil added. “That could affect the prices of residential property in areas adjoining IT parks."

Some argue the stock market’s fall may draw long-term investors to property and have an optimistic outlook.

“The relative stability of the property will draw people back to the property markets in the medium term," Vakil said. “We will see many more investors coming back to this market."