Real Estate in India – Where is it going?

There really is no place like home. We in India dream from very early age dream to have a home of our own. Getting your own home at right age has always been considered as one of the biggest accomplishment of an individual. In today’s world, it is THE biggest accomplishment.

Some fifty years back, home was much more than four walls, each property was an intimate representation of those who choose to inhabit them. Now house is like diamond, you purchase it and instead of cherishing the memories in it you are troubled by the monthly EMI and maintenance fees. It is an irony that after buying a flat you have to pay $100 very month as maintenance fees. But that is how the system has evolved.

825bf2638e3aaa2d152d016427748fecIn this first article of Real Estate series, I will focus on how rapidly we have moved. A friend of mine asked me to check the rate of 3 BHK flat in Pune at the start of 2014. I did my research and gave him the report card. The average price of 3 BHK flat is around 75 lacs. Forward 2 years. I checked the rate of same flats and it was whopping 1.25 crore!! I could not believe it. What has changed in the last 2 year? Has the average salary of an individual been 1.5 times? Or the bank has cut rates to half? Or there are more individual demanding lands and no new projects are coming? The answer to all the questions is a big NO. None of the above has happened. But then why the prices have gone so high? There are so many new projects coming every day, there could not be a problem of demand and supply. Then what?

Inflation has played a big role in capital appreciation of properties, not only because of the rise in cost of land, construction materials and labour but also because the government is taxing both developers and buyers on different fronts to regain financial equilibrium. The rupee’s recent fall against the US dollar cannot be ignored either. This has led to a rise in prices of imported inputs.

But still all these factors summed up, prices should not increase in this proportion. I tried digging deeper into the problem and I finally found reasons after little bit of searching and thinking. The prices of land have only going up in areas near IT parks or other big industries. The prices have been more or less same in other parts of the city. Going by my earlier example of Pune, the price has only increased 1.5 fold near IT Park. The rates of properties in Pune city(IT part are at outskirts) is increasing gradually not exponentially. Below are reasons I could think of –

  • The land near IT parks/industry is limited.
  • We have very poor transportation system compared to some others developed countries.
  • Our attachment to our homes on Emotional +Prestige front. Indians are emotionally attached, so we don’t move at the drop of a hat. In some western countries during recession of 2008, many home owners immediately gave their homes to the bank the moment the “value” of the home dropped below the bank loan. NO Indian would ever do that.
  • People want to live closer to area where they work because travelling on Indian roads and in morning and evening traffic on daily basis would be a bigger accomplishment than buying house.

But are we on track by increasing the rates at same pace?

Your comments and opinions are welcome.

In the next article, I will put forward the harsh reality of Indian Real Estate, sad but true. Please subscribe by clicking button on the right(on Desktop) or at bottom(tabs and mobile) for more such articles.

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