Expect nothing, live frugally on surprise.

Thursday, November 13, 2008

Economic Crisis: Cold markets, sizzling properties

Property prices are melting. If you are waiting for them to fall neatly into your budget, prepare for a very long wait. Not that there is no correction, but the extent is limited. When the real estate party was on for the past 4 years, property prices rose by over 100%. Will they drop as much? Not likely. So how do you invest in real estate when home loan rates are so high and prices refuse to drop? By looking for little-known locations where prices are still low or where they have shrunk by a chunky 20-25%. These untapped locations hold out maximum promise of appreciation as the real estate market of the metros, Tier I cities and popular IT destinations at the Tier II level are becoming saturated. The real bargains are available in small towns targeted by big developers. In an Ernst and Young survey, almost 56% developers said that they will foray into Tier II cities and 20% find Tier III cities attractive. One such set of locations is “spokes”—cities that derive prosperity from nearby real estate hubs while offering affordable cost of living. Also watch out for big city suburbs. “Poorly connected locations that fall on major planned roads are a good bet,” says Ambar Maheshwari, director, DTZ Debenham Tie Leung. Sanjay Dutt of Cushman & Wakefield, a real estate consultancy, says that property prices in small cities are still lower compared to those of big cities. Tracking the IT industry’s movement to smaller towns is a good way to identify which ones will witness appreciating property prices. Look out for better infrastructure, proximity or connectivity to established real estate markets and creation of sustainable jobs. Even in bigger cities, pick areas where a major infrastructure project is being planned and give priority to investment corridors over micro locations. For example, if real estate development is taking place along a highway, locations along the same road will also benefit. But don’t invest blindly just because prices are low. Deals in upcoming suburbs and smaller cities can be messy. “Many developers are booking flats in small towns without government clearances,” warns Maheshwari. So do your homework well before buying property there. We have made your work easier though. After some digging around, here’s a list of 8 small cities that may become property hotspots tomorrow.

Land a good deal Is this the right time to buy a house? It’s a question being asked across the country by thousands of potential investors in real estate. Before you even attempt to answer it, just consider the situation in the real estate market. Property prices are falling, interest rates are rising and demand is so low that even big builders are finding it difficult to sell projects. Demand for housing has come down steeply, pulling down property rates in the past year. Prices in some areas have corrected by as much as 25%. The incessant rise in interest rates has made matters worse. With home loan rates touching 12%, investors don’t see real estate as a viable investment anymore.According to investment banker Credit Suisse, sales volumes in Mumbai in the first six months of 2008-9 are down 14% compared to the same period in the last year. The steepest fall in a month this year was in August 2008 when sales were down 27% compared to last year. So why would anybody want to invest in real estate at this juncture? However, reality can be very different from perception. True, the property market is having a rough time and a turnaround isn’t likely in the near term. But these worst of times also present the best of opportunities for buyers. Even the most pessimistic industry observers feel that the correction in real estate is over. They expect residential property prices to “drift” by 3-5% rather than “crash” further. There are some positive spin-offs because of the drop in demand in the luxury segment. It has forced realtors to focus on the mid and lower ends of the market. This means no frill houses at reasonable prices.


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