- Stock price performance
Since, the beginning of the corrective phase in Indian equity markets, real estate stocks till date over the last 9 months have corrected 70-80%. In contrast, property prices (in terms of transactions reported) have more or less been constant or corrected some 10-20% in non prime tier 2/3 cities where there is stark over-supply situation.
A lot of research into the lead indicators of the economy / sectors have given findings that equity markets / prices are lead indicators of the economy. The time taken is a function of efficiency of individual markets. My own observation has been that Indian markets are fairly efficient and do factor in the immediate 9-12 months expectations.
- Rental yields
Rental yields in high growth areas in
Commentators keep coming up with the logic that the
As for people who are consumers, the demand exists and will continue to exist. But, it will be price sensitive (meaning affordability holds the key)… if we take a typical urban middle class nuclear family whose average income will vary from anywhere between 3.5-7 lakhs p.a. at a time of rising interest rates will not be more than 4-5 times annual earnings. Neither will banks lend more than this.
So by definition, house prices in urban areas need be around 14-15lakhs (for small sized properties) and around 30-35lakhs (for mid sized properties). If we consider these prices for 2 cities of Mumbai and
Typical real estate cycles have been around 6-7 years cycles and these have usually been longer than the broad economic cycles. (Financial markets act immediately, real estate markets take time to equilibrate). By this logic, we are around 3.5-4 years into the cycle which started in mid / late 2004.
I donot know which indicator / argument is more / less predictive, but since all point to a single direction I reckon most people will wait to watch before transacting.