Going through the media news, articles published, It looks the real estate bubble is ready to burst. Looks like a real big bubble. This vulnerable sector, is dubious in its opaqueness and is the epicenter for black money, where the rich and wealthy, plough back all the unaccounted money.
The real estate asset bubble gets evolved, when the price of the land, apartments, commercial space, is disproportionately higher than the govt guidelines. The bubble becomes bigger and bigger and results in unsustainable price. It also impacts very high NPA, low credit take off by the banks, RBI refusing to reduce repo rate( rate at which banks take loan from RBI to lend to customers.
The unsold apartments, known as inventory, is a litmus test for evaluating asset bubble situation. We have staggering 7 Lakh unsold flats, READY for occupation in major cities of Bangalore, Mumbai, Delhi, Chennai and Hyderabad. This will take at least 3 to 6 years, to get sold off.
- In Bangalore – its around 1.25 Lakhs apartments which are unsold, and will take more than 3 years to clear the stock
- In Mumbai – its around 1.72 Lakhs unsold apartments will require more than 4 years to sell off
- In Delhi, highest – its around 2.5 Lakhs apartments which will take 5 years to wipe off the inventory.
As a result of the above inventory, there is a 50% fall on new project launches and dip in sales by 30% for the first 6 months of this year. The sale price of these flats are anywhere between 4000 – 20, 000 Rs/ Sq feet.The average price of a 1000 Sq feet flat are in the range of 60 lakhs – 2 Crore. In spite of all the above negative factor, builders are reluctant to reduce the prices, which they feel is their sign of showing weakness. The builders also brushed off the caution sent by RBI Governor to reduce the price. Instead of reducing the price, builders are offering, freebees like bearing the interest of the loan, till possession of houses, soft furnishing, modular kitchen etc.
So, for buyers, its preferred to ‘wait and watch’, how the scenario unfolds, before buying. Its a who blinks first scenario. When bank NPA levels are high, the cost of the loan is high, prices of the apartments are high, it’s better to postpone the buying till you get clarity, or prices to cool down.
Think, if its worth buying a 40 Lakhs property for 60 Lakhs and more!!
( Courtesy/ and Inputs from Deccan Herald paper, written by Mr. S. Narendra, a Bangalore based banker)
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