What happened to your real estate investment

Have you invested in a property some 2-3 years back and now regretting that you have made a bad decision? Don’t worry you are not alone, there are lot of investor who is stuck in their real estate investment and are facing issue like possession delay, no or minimal appreciation, external or environmental issues, not able to exit current investment etc.

For most of the investor lack of appreciation is the biggest concern along with market liquidity. What is the reason for such a prolonged low growth period in real estate sector:

Oversupply: This is one of the major issue as most of the Indian market is having an oversupply situation. Take an example of Noida, development is happening in most of the new sectors and the builders are about to give possession in many cases. This city doesn’t have enough population nor the corporate activity is very strong, so where will you get the demand for those houses? The case for Gurgaon is no different as so many new projects are getting ready for possession and lot of apartments in developed society are lying vacant which brings lot of pressure on demand.

Extremely high prices: The prices for most of the places like Noida, Gurgaon, Mumbai or even Bangalore & Pune has gone up very fast and at these prices there aren’t enough buyers. The builders are stuck with their unsold stocks and investors are stuck with their investments. This is putting pressure on prices and there are attractive and distress deals available in the market.

Weak job sentiments: People are short of confidence as far as their job security is concerned. The salaries aren’t growing as fast as they use to. The young professionals are not able to save enough for their houses, the experienced professionals are already stuck with a loan or two and not able to extract enough for further investments. All these things put together is not a great thing for real estate investment.

Low appreciation: This is one of the major reason for low appreciation. Historically property prices have been associated with growth and at times phenomenal growth especially in the period between 2004 to 2007 and decent growth between 2009-12 period. When you or your friends have seen growth you would like to carry on the same behavior and replicate the past success, but these days since there are no success stories and more of failures people are demotivated and there is no incentive to stretch and buy these expensive houses.

Low rental rate: The rental returns for most of the big market in the country is around 2%. Oversupply is one of the major reason, lot of project launches are ready for possession and if someone is willing to travel some distance then they can get a brand new apartment at half the rental. Another reason is that most of the investor are stuck and not able to liquidate their investments, so it’s better to put it on rent. This is especially true for Gurgaon market where rental prices have dropped by over 20% in developed areas.

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