Fintotal News Analysis | The Reality Behind Realty
The Reality Behind Realty
, 27 Oct 2010

What's happening?

After a two-year 'slump', realty markets are hitting the headlines again. Housing project ads are dominating the hoardings and the print media. In many television channels including South Indian ones, you can see film stars peddling real estate projects. Builders are talking up the market, including 'projections' on how market will further rise in the next one year.

In the meanwhile property rates seem to have reached, and sometimes exceeded, their boom 2007 values. In Mumbai and Delhi, rates have shot up by over 40% in many areas in the last one year. South Indian metros haven't picked up as fast, but they may get there.

NRIs too are being flooded with real estate 'investment ideas'. With the Rupee relatively stable and Indian economy growing much faster than their home countries', Indian realty seems a juicy opportunity for them too.

What does it mean for me?

A builder or broker will always talk up the prospects - never will he say the prices will collapse! In finance, when everyone is talking about something, it's best to avoid it. This applies to IPOs, shares, insurance schemes and even real estate projects. The current boom, especially in Mumbai and Delhi, looks fueled by stock markets, not by fundamental demand.

In any case, you should be analyzing the project carefully. A 'green surroundings', 'large area' project is usually euphemism for saying the project is in the middle of nowhere. Do not get fooled by the '15 km  from airport' type of ad - airports themselves are 20 km or more away from the city centre in most Indian cities, and its likely this project is 15 km in the other direction!

The other mess people commonly fall into is investing in under-construction projects. Given India's poor regulation of the real estate market, builders can get away with endless delays. They can, however, charge you penal interest if you pay your installment late. There are often several other one-sided clauses in the contract including restrictions on resale for some years, limitations on how you can hold the builder accountable for poor construction, etc. There is little you can do about these rules yourself, except to stay away when in doubt.

In summary, looking at real estate as an investment can be risky when there is so much hype. Do evaluate it against other options you may have.

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