Declining Price Trend in Real Estate

The price of both Chinese and Indian real estate have started to decline over the last year. While Indian real estate prices are showing as stagnant, prices in the ultra-luxury space in Delhi and Mumbai have fallen by 20-30%. Note real estate transactions in India are opaque and the information given by the regulators is not good. The sentiment towards real estate has changed dramatically as prices have become stagnant. Note most buyers leverage themselves heavily to buy real estate and even stagnant prices means real loss of 10%, given India’s past 5 year inflation. Many consumers are now hesitant to buy real estate, given the negative sentiment which is feeding itself in a loop. There is also a massive inventory in major markets like Delhi, Mumbai and other places. Given the high rates of returns, developers went on a massive building spree, which is still continuing. However, prices of apartments have gone out of the reach of most buyers. Normal apartments in cities like Delhi and Mumbai cost nearly $200,000 compared to India’s per capital income of $1500.  While some of the real estate players like HDFC still are living in lulu land, saying that affordability has become very good with incomes rising to Rs 12 lakhs or $20,000 (how did they come to this income level with average flat prices of Rs 52 lakhs. Do they really think a person earning Rs 12 lakhs will go for a 1 bedroom small flat which costs 52 lakhs?).

The developers are also not willing to slash prices (only 5-10% official discounts at most and that too through convoluted offers like free parking and registration). They are holding onto the huge inventory, while users have disappeared. The Indian economy still has not fired yet and high paying jobs are scarce.

New home prices in China fell by 6% from a year ago and showed the 8^th consecutive decline last month.  Real estate investment has crashed with expectations of growth at just 5% from 10% a year ago. China is going through a massive slowdown in growth at the moment. Nobody can rely on official Chinese data, which even Chinese leaders do not believe in. Electricity data is showing a sharp decline in growth and steel sales are set to fall for the first time in over 25 years. Real estate which comprises 20% of China’s GDP is already overinvested with stories of ghost cities galore.

US Federal Reserve is probably going to raise rates later this year, though it depends a lot on USA growth. If they do raise rates, then global liquidity will tighten and the most overvalued assets will be the worst affected. Indian and Chinese real estate prices have been way out of normal valuation for a long time now. They have been exacerbated due to corruption, which allows officials to park their billions and trillions in property. With governments cracking down on illicit money generation and liquidity tightening, thing don’t forebode good tidings for the real estate industry.

NY Times

China’s new home prices fell for the eighth consecutive month in April from a year earlier but were flat from March, adding to hopes that a property downturn which is weighing heavily on the economy is beginning to bottom out.

But analysts warned any recovery in the market will take some time given a huge inventory of unsold homes, and said the property sector remains the biggest risk to the world’s second-largest economy, which looks set for its worst year in 25 years.