No big move in real estate prices for 2-3 years: Knight Frank

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Knight Frank Executive Director, Advisory, Retail & Hospitality, Gulam M. Zia tells ET Wealth why buyers should avoid investing in property and how the rollout of the GST and implementation of the RERA could impact real estate prices.

Home loan rates have come down and prices have not risen too much. Is this a good time to buy property?
This is not the time to buy real estate as an investor. The way things are going, real estate is not likely to move up significantly in the next 2-3 years. If the objective is to earn from the investment, other asset classes (such as stocks, fixed income and gold) are likely to generate better returns than property.

The real estate sector is going through a lot of pain and we have not yet reached the bottom. With the kind of risks involved in real estate investments if the prices take more than five years to double then it doesn’t make any sense.

What about people who want to buy for their own use?
If the property is for self-use, the considerations are completely different. Then you can go ahead and buy because you need a house to live in. However, if you are in a position to wait it out, don’t buy just now. The GST (Goods & Services Tax) has been rolled out and the benefits of the new tax system will become apparent in a few quarters. The cost of constructing a house may come down after builders start claiming the input credit tax.

Are you suggesting that one might be able to get lower prices in the coming years due to GST?
Much will depend on whether the real estate developers pass on the benefits of lower construction costs to the buyers. It is highly likely that developers might not pass on the benefits immediately. Many of them have experienced a couple of bad years and may want to cover up historical losses before passing on any benefits to buyers. However, since it is a buyer’s market today, a seller may be compelled to share the spoils earlier than anticipated.

The NCR was once a thriving market for real estate but is now floundering. What are your observations?
The NCR market continues to plumb new depths. With an inventory of over 1.8 lakh units, the NCR has the highest unsold stock in the country. Unsold flats are not a big worry if sales are faster than the time taken for completing the projects. In Mumbai, the average age of the unsold inventory is three years while it takes almost five years to complete a project and hence inventory build-up is not worrisome. But in NCR, it takes more time to sell a property.

In current times at the prevailing sales velocity, it may take nearly 18 quarters for a property to be sold. In some micro-markets within the NCR, such as Faridabad, that figure is as high as 35 quarters (or nearly nine years). It seems nothing is selling in that locality. In Greater Noida, prices of property have actually come down in recent months after demonetisation. Though sales improved in Greater Noida during the previous quarter, the inventory is very huge (69,000 units) and it will take 15 quarters to sell the inventory.

The RERA has not been notified in Uttar Pradesh and Haryana till now. How far has this contributed to the state of the real estate market in Gurugram, Noida and Greater Noida?
The NCR market is yet to benefit from the impact of RERA because it has not been notified. RERA got delayed in Uttar Pradesh because the current government is attempting to strengthen the guidelines in sync with the central RERA Act. The new regime in the state has made some modifications, which has delayed its implementation. In Haryana, the delay in notifying the RERA has contributed to the lacklustre sales and launches in Gurugram and other cities.

There is a lot of speculation that the new airport at Jewar will boost the real estate market in Noida and Greater Noida. Is this optimism justified? What kind of impact could it have on sales and prices of property? 
Social and physical infrastructures definitely add to the attractiveness of a location thus improving its real estate potential. However, since globally most of the airports are planned far away from the city to avoid congestion, the spatial growth in the direction of the airport takes its own time.

Case in point being is the Devanhalli and Shamsabad airports in Bengaluru and Hyderabad respectively where n ..




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