Real Estate Correction

There has been some talk of an impending correction in the real-estate market in India. For the longest time, this has been wishful thinking on the part of people who find housing prices prohibitive. Now however, I am beginning to believe that there is something in the offing.

There are a couple of indicators that lead me to this conclusion.

If you have been paying any attention at all to hoardings and billboards in Indian cities, you will have noticed that almost all advertisements, until recently, were for real estate projects. This trend appears to be coming to an end. About 2 months ago, hoardings in Pune started sporting ads for stuff other than apartments. Even more telling perhaps, is that any ads for real estate now promise discounts rather than prestige. A builder-developer's holding power now appears to be a major contributor to the asking rate for an apartment in Pune; you can now find two apartments in developments within a stone's throw of each other selling at rates as widely different as Rs. 12000 per sqft and 18000 per sqft.

The other indicator is that one now hears of old bungalows on plot sizes in the 5000 sqft range becoming available. In the last couple of decades, private buyers almost never heard of these, for the builder-developers would lap them up, tear down the bungalow and put up an apartment building.
Now it appears that builders are not game anymore.

Real Estate and Education have been the last remaining bulwarks of the Licence Raj, and it appears that the real estate ramparts are falling. This is definitely welcome, for as I have said before in one of my posts, real estate prices in India are so warped that almost no business makes financial sense for the small and medium businessman in urban centers within the country after you factor in the cost of real estate. The politically connected have been manipulating the real estate market to park their wealth. No business venture can compete with parked money where a zero return on investment or even a small negative return is acceptable. Times are a-changing though. Once the market cracks, as it appears about ready to do, real estate will cease to be a safe haven for ill-gotten booty, and legitimate business ventures will have a chance once again.

Whatever it is that you are doing Mr. Jaitley and Mr.Rajan, it appears to be working. Full steam ahead.