With the rupee touching 50 for each dollar and real estate prices touching bottom levels, the current real estate markets offers a very good investment opportunity. Especially for NRI’s interested in buying property in India, this is an excellent time. You can think of waiting for some more time, but it is very unlikely that the prices will go below the current levels; primarily due to the fact that the current prices offer not much margin for the real estate developers to offer discounts.
Let me do some math to show the rationale behind the above logic.
Let us consider an investment of INR 40 Lacs in an apartment. Investment made at the time of March 2008 would cost approximately USD 100 K (one hundred grand US dollars). We all know that there is a correction in the prices of the real estate sector from the March 2008 levels. I am going ahead with the assumption that prices declined by 15 %. So, a property worth INR 40 Lacs would be available for INR 34 Lacs (40*(1-0.15)). To account for the devaluation of rupee (you can call it appreciation of US dollar), I am using a conversion factor of INR 50 for a US dollar. Now, the same property would be worth USD 68 K (sixty eight thousand US dollars). Now, that's a real discount of USD 32 K.
The above numbers vary significantly if you play around with the assumptions I made. However, you will notice that the above assumptions are very conservative. We all know that the real estate prices have gone down by more than 15%. I just used 15% to show how the numbers look even with a very conservative estimate. You can do the math by following the above steps and by using the closest numbers to see how much of real discount you get by investing in property now.
Now, let me focus on why one should not wait longer. Most of the property dealers brought land at sky high prices. They have already made investments in the land and they went ahead with the projects. They priced the projects accordingly with a good margin. By good, I mean around 20 to 25 % margins. With the current decline in market prices, the margins a real estate developer makes on his project are under severe pressure. It is very unlikely that the prices of apartment s or villas will come down mainly due to the fact that most of the land used for developing these projects was brought at sky high prices as explained above. One can expect a decline in prices for the projects that will get started on the land acquired now. However, there is not much land acquisition going on now (at least what I know of). Even if somebody had purchased land, nobody wants to start projects during these tough times. So, everybody is delaying projects for good days. If the market picks up in the next one year, then you know how fast prices would go up. Or, if the dollar depreciates (or rupee appreciates… we all know Indian economy is not in such bad shape and has the potential to maintain a solid 6% growth rate), this opportunity will be missed.
So, give it a thought. If you are interested in talking to us, click here.
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