India's real estate sector is going through rough times with sales being down radically as the number of unsold flats grows day by day. According to The Economic Times, the Indian property market is extremely slow with slow house price increases. So what is behind the huge slow down?
Real estate investors are starting to worry as property prices have risen at a very slow pace for the past year, and their return on investment is becoming harder to achieve, the residential sector being the most affected. "While stated prices remain elevated, transaction prices have already fallen by 10-15%. Discounts have increased significantly in the secondary market and distress sales are becoming increasingly common," says a recent Ambit Capital report on the sector.
While experienced investors have the means to wait for more prosperous days, ordinary people who invested in a second house are selling their properties below the brochure rates. However, most property prices are still very high even though overdrawn developers are offering substantial discounts by implementing creative financing schemes to attract more buyers. "If real estate developers bring down prices, it will be a big help to the sector. Once there is a sense that the prices have stabilized more people will be willing to buy," RBI Governor Raghuram Rajan said.
One of the main reasons for the real estate crisis is the Black Money Bill passed by the Indian Parliament on May 26. Real Estate used to be an opportune way of redistributing illegal money, almost 30% of the transaction value being done in cash. However, the government's endeavours to expose black money and penalize the perpetrators has declassed the process which eventually caused the real estate slowdown.