Since Change is the only thing that is constant, we are witnessing as we speak, a change from a seller’s market to a buyer’s market. Although, several sellers in the re-sale segment and developers are still in denial, how long can one hang on to the rates that were? Developers who bought land or redevelopment projects at high rates are feeling the heat beyond imagination. These are the “Lehman’s” of our industry who over leveraged. The rest of the developers who even were being conservative during the boom time are proving and re-emerging as the winners since their purchase prices were in check.
The projects that were slated to start between October and December have taken the biggest beating. Almost half of them have been put on the pause mode. Unless one wants to create a warehouse of inventory it makes sense to sell the existing inventory and then look at developing more. Just as the buyer has taken the wait and watch approach. Very sensibly the developers to have done the same.
At social events when discussion of what others feel on the market sentiment and when it will recover most people tell things will recover in six to eight months. It is amusing to see how optimistic we are – is it just to fool ourselves from the reality that awaits us?
The wait and watch will last longer than we would like, even if the sellers go with the flow of things by reducing their demand/price (not that there is or will be much choice). One can run away from this downward cycle but cannot hide. Where one could run, the situation is the same or worse in other cities and countries and for once the entire world is going through a ‘Change’ called global recession.
Since the impact is global, with individual and united effort we will sail through this. The truth always hurts, but if a patient is diagnosed for cancer, you can only fool him or her for a short while with stories. There is cure but needs to be patient and content. The most successful people hit bottom and scaled up like Donald Trump. Now we won’t get into his situation today since we are all almost in the same boat, which feels more like a gigantic ship.
The good news is that about 30 to 40% of sellers and developers have corrected and reduced their prices. A certain percentage of sellers accept the fact that prices have corrected but are victims of circumstances where they need to recover certain pre-conceived figures to either pay of debt or for other purposes are rigid on their sale price. Some developers are stuck because they bought at peak and borrowed through structured and unstructured finance routes and are feeling the pinch of paying interest, paying back capital borrowed and not being able to sell their property. This is where we will see a new era of mergers and acquisitions in real estate.
We may hit the first bottom in the second quarter of next financial year (July to September); what needs to be seen is what kind of support the market gets at that stage. We will get tremendous support at the ‘right prices’. Crude has hit the lowest low, gold is too high to invest into and how much of it will you possess in paper or physical, equity people have burnt fingers and hands and a few other body parts, banks have gone bankrupt internationally leaving fear of depositing or leaving money with the banks or financial institutions or instruments. This brings us back to the most trusted and solid long term investment “Property”. It also does come under three important necessities of life – Food, Clothing and Shelter (Property).
Equity / Stocks will go up and down, businesses might go bust but the only thing that remains constant is a need for shelter or a roof for business, which comes in many forms; A home, an office, retail (shopping), cinema halls (multiplex), industrial, warehousing, hospitals, hotels, night clubs /pubs, golf courses are all part of real estate. It can go through cycles but never out of fashion. No matter which way the property market swings someone or the other is buying, selling or renting and you can be a part of the business and profit from it.