India Real Estate Market About to Crash Or Consolidation?

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It is not easy to find an analyst on the street who will be mildly bullish on the real estate market leave along someone who is irrationally bullish. In a scenario where the market seems to be short the real estate market, the laws of contrarian investing state that “when the whole market is long/short a trade, the trade may not fructify” which is what is happening to the real estate market in India. Fundamentally, the market is poised on a knife edge with multiple triggers slowing the market down. Some of the macro pointing to an imminent fall in real estate market are:

75 bps Rate hike by India central bank in 2011 has had debilitating effect on families who have been thinking of a new house purchase. Rising borrowing costs and inflation are reducing ability of Indian families to purchase a house.

With more interest rate hikes from RBI in the offing, macro environment is expected to continue to get tougher. Therefore, the risk of an accelerated downturn in sales still remains.

Lower Loan/Equity ratio: RBI has now instructed banks to accept nearly 20% of house value as equity portion from the buyer thus effectively reducing the ability Indian families leverage to buy a home.

Developers borrowing cost: Rising borrowing cost have also effected developers who now find it difficult to complete projects.