Wealthy and Wise - July 15 , 2006. Times Property (Times of India)

Real estate has perhaps created more millionaires than any other form of investing, so if you see the right property, buy it!

My last column threw light on the general sentiment of nearly everyone I have met socially or otherwise saying only one thing, that, the market is falling.
In my modest capacity, I would like to put things in perspective: To begin with let us define a fall or a drop versus “correction” in “real estate” terms. A “correction” is a direct reaction to resistance in buying at a particular price, which the buyer may find high and illogical. To elaborate; the seller always wants to sell at the highest price, often at equal or higher than the last sale of similar property. In most cases the seller would fail to achieve such targets because he meets resistance from buyers on his expectation levels. He would then have to “correct” his price to the market value/worth (which would be an average price of the last three to five deals in a project).

More often than not, we find people judging “re-evaluation/correction” as a drop or fall in price, which is absurd. If the price were to go lower than the “average” sale price in more than three to five deals, it could be considered as a fall or drop. Just as we cannot and should get swayed by isolated deals at higher levels and think that the market is on the rise, isolated deals/sales with corrected prices or lower than average prices cannot tantamount to the market falling.

There is no denying that there is a general slow down in activities and that is healthy. Any market with a non-stop run would take a breather. In one year, simply because of high priced land deals, we saw an upsurge in property prices. At times, I used to honestly feel prices in some select and potentially great locations were undervalued around the same time last year. For example, mid-town (Prabhadevi to Lower Parel ), Bandra, Khar, Sanatcruz, Juhu and Lokhandwala/Versova residential properties and Andheri west commercial properties were available at attractive levels.

The current sustained bull-run in Indian real estate cannot merely be attributed to speculation this time, as it has clearly been driven by market forces (read: end-user demand).

Some of the factors responsible for the positivity are:

•  The country having excelled in most economic parameters has fuelled demand across most industries giving rise to corporate optimism and expansion plans, leading to demand for land and office premises
•  Greenfield industries such as BPO, Software, Telecom, and private banks, among others, have created job opportunities at a pace never seen before, which has suddenly broad-based the consumer market in terms of demographics.
•  New age Indian millionaires, both as entrepreneurs and professionals in significant numbers who have seen and consumed the best across the world, come back to demand the same and pay for it. This has led to an unprecedented demand for lifestyle homes other than properties dedicated to high-end leisure and recreation
•  Had the price surge been restricted to metros it would have been a lop-sided story. However the broad-based nature of growth in this sector lends credence to its efficacy.
•  A significantly higher disposable income among the mid-level income segment who also happen to be the most aspiring among all other income groups has led to a spurt in demand in the Rs. 10 lakh to Rs. 40 lakh housing segment
•  The India success story has been on top of the charts not just for weeks, but the past few years and more. Going by the trends, its actually child's play to predict that investments from across the world will continue to flow in as it has in the past couple of years.

Logic does not apply to real estate valuation or stock valuation. When the stock market was at 3700-4000 levels with individual stock prices at its lowest, I am sure not many people were buying. In the same way when property prices were at 40 to 70 per cent lower than today from last year not many people were buying. The herd mentality exists the world over. If the stock market index was at 14,000 today, the same folks who were saying the property market is falling would have had a different thing to say. While the stock market is evaluated by fundamentals and further driven by speculation, the recent property market rise that we have seen has been based on genuine demand.

Here, even the speculator has turned into a landlord and has blocked further supply of availability by converting his speculation into a sound investment. There are many options available out there for building your wealth. But Real Estate or Property Investing has perhaps created more millionaires than any other form of investing.
The reason why real estate is such a powerful wealth-building source is two fold; first, there is only a limited amount of property in any area. And once that has been sold, there is nothing left for it to do but rise in value. Secondly, real estate investing offers excellent leverage on your money.

If you are buying a house to live in; it is still a good tome to buy in most locations and better in locations wherein the surge has begun later.

For one looking at a bigger/ better home; if the particular location is short on supply, please buy the house the moment you spot one as they don't get created every day, or else take your call based on the supply trend.