Have the realty prices really shot up?

Most places in India have seen a dramatic price rise recently. Gurugram has seen prices more than double in about a year. South Delhi Luxury builder floors and bungalows (or just land) has gone up in price by about 15-20% depending on locality and location. Top floors with terraces have gone up even more dramatically and hold a very high premium right now. Probably about 20%.

Most of this price increase came when interest rates were lowered by the Indian Government giving rise to rapid liquidity in the economy. Plus many people did not wanted to loan their money anymore and rather just invested directly in real estate, than lending to real estate related businessmen. The pent up demand comes back with a vengeance every time we have a new lockdown (and consequent opening up).

Given the dramatic rise in Gurugram, it seems that the rally could not continue. But Gurugram has other specific reasons that pushed it dramatically up. Few reasons are increase in FAR (fancy term to say how much you can build on a plot), low circle rates, easier to speculate by smaller financiers and investors, and DLF launching builder floors at exorbitant prices, that pushed prices of builder floors by local builders way up, and so the land prices skyrocketed too.

But look at other more stable markets like South Delhi. Prices have been stably rising and there is a very healthy demand for properties in South Delhi. These rates look higher now for sure but if you take a step back and look at the long term picture, the rates are still in the beginning of a very long bull run to come yet. The prices in South Delhi, for example, have still not reached the highs of 2012! In 2012, Vasant Vihar and Defence Colony were touching 9-10 Lakh Rupees per sq. yard. Right now, even after all the increase and noise, the rates have just reached about Rs.7.5-8 Lakh per sq. yard. In Greater Kailash one could not buy a 208 sq. yds. plot under 12 Crores in 2012 (at peak) and right now deals are available in Rs. 10.5-11 crores range.

So if you look at the overall picture you would see that the prices are still about 10-15% lower than they were in 2012! Add to it 8 years of inflation and you would find the prices 50% lower than 2012! I am not saying they should be 50% more, but I am just comparing to 2012 prices. What they should be is so debatable that I would rather not go there. We can only compare to what happened in the past and hope to learn something from there. Last time when the interest rates were lowered in 2003 prices shot up and reached 10 times in 10 years. We have again lowered the interest rates but it would be quite naive to say we will see a ten-fold increase, because price of an apartment in Defence Colony can certainly not be 75 crores by 2032. But even if we say that real estate prices will at least cover for the high inflation (real inflation, not what authorities say), there are very good gains to be had. Add to that the high liquidity, lack of options to invest the hard earned black money of investors (it is true- ask any of them) and the emotional support of Indian society towards owning own home. I think that should take the market anywhere between 12-20% up compounded annually. Bold prediction to make. So I am not making it. Let us say somebody else told me this and I took it with a pinch of salt. When it all comes right I will take the credit for the right prediction.

Do well. Stay invested wherever you consider best. Coming times will eat the money sitting in your bank account (or basement?).

Want to discuss more? I will be happy to chat.

Best Regards

Ashutosh Bhogra

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