When will the real estate prices fall?

Real estate prices have skyrocketed and have almost have moved near astronomical heights in India. The last 7-8 years has seen the prices manifold. While a section has been waiting for this to fall, no significant correction has happened. 2008-2009 saw a period of lull during global recession, but no impact was actually felt in India. Let's try and look at the facts that have enabled soaring of prices.

1. Phenomenal increase in income of  middle class Indians ( Thanks to IT,ITES  jobs that came to India, which created a flurry of many other indirect jobs).

2. Raise of consumerism and domestic market/ businesses getting stronger in India.

3. FDI flows and investments in Equity and RE.
4. Ever raising population in Indian cities.

5. Influx of NRI money as the process started going up and RE becoming an hot investment.

6. Ever increasing corruption and Uncontrollable black money which can only be absorbed by RE which is least regulated.

7. Easy availability of all loans, esp. home loans and EMIs making life look more easy !!!

Lets analyse the situation in most metros.

1. Flats in posh areas almost beyond reach of middle class working couples.

2. Flats that are available in other areas almost squeeze out the paying capacity of salaried people (INR salary)

3. No one is going to sell the flats at lower rates than existing ones unless there is a dire need to have money (one or two may happen due to personal crisis but this wont trigger a price correction in the market).

4. The input cost and labor cost have gone up phenomenally, they are not going to recede so easily.

So, wont the prices come down drastically ? is the question.

1. Prices can keep moving up and there is a saturation point from where the demand dries.Price raise may happen but a repeat of 2002-2010 may not be expected.

2. Even if price remains flat for 3 years ( it's a 24% non compounded correction considering 8% inflation)

For the prices to crash either of two should happen

1. Interest rates going too high , where the default rates from borrowers get significant.

2. Builders getting into cash crisis and not able to complete projects triggering of a non-belief.

3. Mass layoffs or significant job losses ( at least now the opposite is happening..lot of new jobs getting created)

All of the three stated above have very less probability to occur in the immediate future. 

No one can knows what the future holds. But for the masses to get on to a decent shelter and for the middle class that doesn't have any social security from government, the current prices do not augur well !

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