33.42 How do you judge the Property Market to buy at the right time?

Who controls the supply of Real Estate?

Let’s take Dubai vs Goa:

The criteria for Dubai is:

• Available of Land, Sea, and Raw materials
• Big Developers can come in easily.
  • They can increase the supply massively
• Old properties are not as lucrative.
  • The rate of new development is massive.

The criteria for Goa is:

• 90% are agricultural, only 10% can be used for settlement
• Land is fragmented, so it might be hard to expand exponentially.
• The rate of new development is low.

Goa as it stands:

• The properties next to the coastline of Goa had an FSA of almost 50% a decade ago. (FSA is the percent of land that you can build on)
• Now this FSA has dropped to 33%.
• This has led to prices in this area increasing, and the development cost also going up.

How does reduction in FSA affect the Real Estate Market?

Real estate markets are cyclical in nature, experiencing periods of expansion, peak, contraction, and trough.
Theses are influenced by various economic, financial, and socio-political factors.

Let's take a look at each of them:

• Expansion Phase:
  • Rising property values, increasing demand.
• Peak Phase:
  • Markets reach their highest levels of activity and valuations.
  • Characterized by excess demand, inflated prices, and speculative investing.
• Contraction Phase:
  • Markets experience a slowdown in activity, declining property values, increasing vacancies, and economic uncertainty.
  • Opportunities may arise to acquire distressed properties at discounted prices
• Trough Phase:
  • Markets reach their lowest points
  • Characterized by depressed property values, high vacancies, and distressed conditions.
• Recovery Phase:
  • Markets begin to stabilize and rebound
  • Driven by improving economic conditions, increased investor confidence, and growing demand.

Let’s try to understand this as per the Residential Real Estate Cycle over the last 10 years:

From 2014 to 2023, 
The top 7 cities in India saw about 2.93 million new homes built.

The highest number of new homes launched was in 2014, with about 545,000 units. 
After that, the number of new homes decreased each year, reaching a low of 146,000 in 2017.

But things improved again with government help in 2016-2017.

Home sales followed a similar pattern.

Over the past decade, 
More than 2.82 million homes were sold in these top cities,
With the lowest sales, about 138,000 units, during the pandemic.

How do you take practical actions?

In India, banks are crooks.
And, they don't offer fixed interest rates.

Meaning:
While they say they are offering a FIXED long-term interest rate,
This is NOT really fixed.

They revamp it every 2-3 years.

What this does is: 
That it keeps your EMI cost high (irrespective of what you do).

How to deal with this?

You really can't honestly.

[1] But, what you can do is:

• In a high interest rate environment: you repay all your debt (if there is no better use of money). Eg. NOW
• When the interest rates go low: you lock a 2-year fixed to buy a new property
• And, sell your existing one if you like

[2] Most of the RE sales happen in a low-interest-rate environment.

We are in a RE bull run cycle.
I don't think this is ending in the next 3-4 years.

[3] The interest rates will go down.

Then if you want to sell RE, you should do it.
With that money (plus new RE fixed-interest loans) you can buy more strategic RE.

But the scouting and all needs to be done NOW.

You need to have 5-6 good options ready

Source

• Akshat Shrivastava 23/30 days Newsletter.