HUNT FOR THE BOTTOM

PROPERTY MARKET WILL BOTTOM OUT ALONG WITH THE ECONOMY; SO WATCH OUT FOR MACRO INDICATORS

Everyone is asking: How close we are to the bottom in the property market or may be how long it might take us to get there. Frankly, no one really has an answer. It’s difficult to know the bottom, unless it's well past us, for any asset class. But for property, it's all the more difficult as the sector takes painfully longer to correct, unlike any other asset class.
Property markets go up and down with the larger economy. It outpaces GDP in a growing economy and underperforms in a slowing economy. With estimates for India’s GDP growth increasingly getting downgraded to below 5% for calendar year 2009 by several international agencies, it’s increasingly likely that real estate will continue in a downturn this year.
But many property firms are still hopeful of a recovery. India’s largest property company DLF says market may start looking up in the second half of 2009, as prices correct, interest rates come down and general economic uncertainties subside. DLF vice chairman Rajiv Singh also feels prices would correct by another 20% in three months before stabilising. He says prices have already corrected by almost 30% in a year. Some of his peers claim prices have corrected by over 50% and reached rock bottom.
Now the key thing is whether you should trust these property firms on the extent of correction that has already happened. An independent survey will tell you that the figures they are quoting is at best partially true. Prices in some once-overheated locations and Rs 1 crore plus residential segment have surely corrected to the extent of 20% or so. But as you climb down the price ladder, correction is difficult to see. For lower priced homes (less than Rs 60 lakh), correction at best is around 10%.
Now the next question: Is it the right time to buy home. Absolutely not. Property prices must come down further to encourage buying. If all other asset class such as equities and commodities can correct by as much as 50-60%, then why not real estate. It's the investors and speculators who actually drove up the property market to astronomical level. Now that they have exited, water must find its own level.
Price discovery in real estate is fairly difficult in a downturn. It’s impossible to know the current prices, let alone know if we have hit the bottom. Property transactions have disappeared. In addition, you have property dealers, who give you entirely different rates, depending on who you pose as - a seller or a buyer.
So for investors, the best option is to stay out. For end-users it is best to continue to evaluate properties, but show no hurry to conclude a deal.