We put together an article that gives you an insight on what really happens when residential real estate prices fall.

For as long as we can remember, residential real estate or housing property has been a store of wealth and an investment proposition. In India and most countries of the world, the house is one of the biggest markers of family wealth and well being.

So what really happens when housing prices fall? Here are the major effects of a residential property price drop;

1) The first effect of falling house prices is to directly reduce the wealth of homeowners (wealth is different to income). A fall in house prices reduces consumer confidence which leads to lower levels of spending, investments and borrowing, slowing down the whole economy.

2) Investment property resale has played a significant role in boosting consumer spending in the India. Falling house prices slam the brakes on this 'return on investment cash' , thus reducing consumer spending.
3) The media makes it worse. Any fall in residential property prices is likely to receive significant press coverage. The media magnifies the effect on consumer confidence. If people believe house prices will “collapse” it will keep many people from buying, and therefore, the fall in house prices will be greater.

4) A fall in house prices will reduce consumer sentiments and spending in the economy. This could lead to lower growth.

5) Due to the importance of housing in our economy it is quite possible that falling real estate prices could cause a negative multiplier effect and lead the economy into recession.

6) Okay, but there is a plus too. A positive impact of falling house prices is that it should make buying a house more achievable for first time buyers. The last few years in India have seen the ratio of house prices increase much faster than incomes. The effect of this is that many first time buyers struggle to buy their dream homes. They would be the happiest lot!

Source and other related articles: Indian Real Estate for Dummies: What happens when residential real estate prices fall?
Read more
Reply
9 Replies
Sort by :Filter by :
  • Banks can fail

    It will also increase the number of foreclosure and it may lead to banking crisis lust like what happenned in US .
    CommentQuote
  • At least not going to fall in NCR. Indian market growth can not be compared with western economics where they have already saturated, slow growth and property demand-supply gap is marginal. Fall in property prices and ppl are selling properties at rate less then they bought is very common scenario in western but not seen this in Indian market (not sure if exceptions.)
    CommentQuote
  • Whole NCR will rock always, its a reality. Forget if RE price will get down in any area of NCR. Check the NCR rates even at the time of recession when whole world including other Indian cities had problem in RE Transactions but NCR do not face much problem and no where price goes downward in NCR. NCR is full Value For Money place for living and still have much much better Quality of Life for general Public even at lower rates then other Indian so called costly Cities.
    CommentQuote
  • Originally Posted by saurabh2011
    Whole NCR will rock always, its a reality. Forget if RE price will get down in any area of NCR. Check the NCR rates even at the time of recession when whole world including other Indian cities had problem in RE Transactions but NCR do not face much problem and no where price goes downward in NCR. NCR is full Value For Money place for living and still have much much better Quality of Life for general Public even at lower rates then other Indian so called costly Cities.


    The prices in NOIDA and GGN have already corrected.The advt. by the builders are now around Rs.3000/psft for NOIDA.Add to that is the freedom of not paying the EMI for next 24 months.

    The builders are sitting are huge unsold inventory and the policy flip-flop and high rates are keeping the buyer away.will the property prices go to the level of Rs.25-2700/psft in E-way.

    My estimate shows yes and it will be by November,2011 when the festive starts and builders trying to cash on the sentiments. :)
    CommentQuote
  • Agree with Saurabh2011, esp. for regions of Delhi, i've never seen prices falling ever. There speed of growth may fall, but don't think they would ever enter in -ve territory.

    For Delhi satellite towns like Noida/GGN/Ghz, prices may saturate or decline (depending on a number of factors) but by only a small %age say 10-15. Don't think situation would deteriorate beyond that.
    CommentQuote
  • Originally Posted by clearhai
    The prices in NOIDA and GGN have already corrected.The advt. by the builders are now around Rs.3000/psft for NOIDA.Add to that is the freedom of not paying the EMI for next 24 months.

    The builders are sitting are huge unsold inventory and the policy flip-flop and high rates are keeping the buyer away.will the property prices go to the level of Rs.25-2700/psft in E-way.

    My estimate shows yes and it will be by November,2011 when the festive starts and builders trying to cash on the sentiments. :)


    I would tend to agree with u here. there was a sharp increase from Jan 2010 to Feb 2011 and prices had almost touched 2007 levels, they have even surpassed those levels in some areas, but since the last 5-6 months prices have stagnated and are not going up for sure (barring specific pockets). This trend will continue till elections and hence u can expect slow progress in the next 6-12 months.
    CommentQuote
  • Indian realty sector to face tough time in next 12 months: Jones Lang LaSalle
    28 AUG, 2011, 04.02PM IST, The Economic Times

    Indian realty sector to face tough time in next 12 months: Jones Lang LaSalle - The Economic Times

    NEW DELHI: With the US and European debt crisis affecting sentiments across the world, the Indian real estate sector is likely to see a gloomy phase in the next 12 months and developers would face liquidity crunch, low sales and pressure on margins, consultant Jones Lang LaSalle said.

    The country's leading realty consultant pointed out that the projects would be delayed, unsold housing stock will rise and developers might have to offer new projects at 10-15 per cent discount, all because of a slowdown in property demand.

    "The US and European debt worries have added to the uncertainty... With the escalating global liquidity issues, these are challenging times. Over the next 12 months, we definitely expect these sentiments to reflect in the financial profile of the Indian real estate sector," Jones Lang LaSalle India Managing Director (West India) Ramesh Nair said.

    He said the banks would further tighten lending to realty sector and disbursal rate of home loans is bound to reduce.

    "Developers will be under pressure to reduce their debt-to-equity ratios. Fund raising through the QIP route will reduce, and we are going to see a decrease in real estate IPOs," Nair said.

    In order to generate funds, the consultant said many developers will sell their non-core land and divest their stakes in non-core businesses such as hospitality and retail.

    Major firms like DLF is selling its non-core assets to cut its huge debt that stands at over Rs 20,000 crore. Unitech at present has debt of about Rs 4,000 crore.

    "This is an unsettling time for the market, and obviously for real estate investors as well. Are we looking at 2008 all over again?" Nair said, referring to the global economic slowdown in 2008 that had hit Indian realty sector badly.

    The consultant observed that high interest rates, increase in vacancy and demand slowdown will impact the earnings of developers leading to a slowdown of construction activity and delay in project delivery.

    The margins of realtors would also be affected due to increased construction costs, Nair said.

    "We are likely to see pre-launch projects coming with at 10 per cent to 15 per cent discount, over the pricing of other projects in the same areas," he added.

    Besides, the distressed projects of smaller developers will be acquired by medium-to-large players at prices significantly lower than their original valuations.

    "The only constant is change. This has been an axiomatic truth for the Indian real estate market over the last 24 months, with volatility having become a byword to describe it. There has been little or no respite from this state of flux," Nair said.
    CommentQuote
  • Originally Posted by saurabh2011
    Indian realty sector to face tough time in next 12 months: Jones Lang LaSalle
    28 AUG, 2011, 04.02PM IST, The Economic Times

    Indian realty sector to face tough time in next 12 months: Jones Lang LaSalle - The Economic Times

    NEW DELHI: With the US and European debt crisis affecting sentiments across the world, the Indian real estate sector is likely to see a gloomy phase in the next 12 months and developers would face liquidity crunch, low sales and pressure on margins, consultant Jones Lang LaSalle said.

    The country's leading realty consultant pointed out that the projects would be delayed, unsold housing stock will rise and developers might have to offer new projects at 10-15 per cent discount, all because of a slowdown in property demand.

    "The US and European debt worries have added to the uncertainty... With the escalating global liquidity issues, these are challenging times. Over the next 12 months, we definitely expect these sentiments to reflect in the financial profile of the Indian real estate sector," Jones Lang LaSalle India Managing Director (West India) Ramesh Nair said.

    He said the banks would further tighten lending to realty sector and disbursal rate of home loans is bound to reduce.

    "Developers will be under pressure to reduce their debt-to-equity ratios. Fund raising through the QIP route will reduce, and we are going to see a decrease in real estate IPOs," Nair said.

    In order to generate funds, the consultant said many developers will sell their non-core land and divest their stakes in non-core businesses such as hospitality and retail.

    Major firms like DLF is selling its non-core assets to cut its huge debt that stands at over Rs 20,000 crore. Unitech at present has debt of about Rs 4,000 crore.

    "This is an unsettling time for the market, and obviously for real estate investors as well. Are we looking at 2008 all over again?" Nair said, referring to the global economic slowdown in 2008 that had hit Indian realty sector badly.

    The consultant observed that high interest rates, increase in vacancy and demand slowdown will impact the earnings of developers leading to a slowdown of construction activity and delay in project delivery.

    The margins of realtors would also be affected due to increased construction costs, Nair said.

    "We are likely to see pre-launch projects coming with at 10 per cent to 15 per cent discount, over the pricing of other projects in the same areas," he added.

    Besides, the distressed projects of smaller developers will be acquired by medium-to-large players at prices significantly lower than their original valuations.

    "The only constant is change. This has been an axiomatic truth for the Indian real estate market over the last 24 months, with volatility having become a byword to describe it. There has been little or no respite from this state of flux," Nair said.


    The major thing to watchout will be liquidity.The developers and builders will be tested.If they can sustain the dryness(absence of fresh booking for six months, up to March-2012), there will be not be reduction the price.However only 5% of the builders has got the ability to do that.

    So, the rest 95 % will be forced to cut the price. just to keep them alive and that will be clear by October-2011.When the festive season starts. :)
    CommentQuote
  • घर खरीदने वालों की मनेगी शुभ दीपावली
    30 Aug 2011, 1524 hrs IST, इकनॉमिक टाइम्स

    गुड़गांव में प्रॉपर्टी के दाम 15 फीसदी तक गिर सकते हैं-Economic Times Hindi

    सपनों का घर जो आपके मन में जाने कब से बसा हुआ है, दिवाली तक उसकी कीमत कुछ कम हो सकती है। त्योहारी सीजन में नए घरों के दाम 10 से 15 फीसदी तक कम हो सकते हैं। पिछले दो साल में बिक्री घटने से रियल एस्टेट कंपनियों के पास बिना बिके घरों की संख्या काफी बढ़ गई है। इन कंपनियों पर बैंकों और निवेशकों की तरफ से आमदनी बढ़ाने के लिए इन्हें बेचने का दबाव है। रियल एस्टेट कंपनियों पर कर्ज भी बढ़ता जा रहा है।

    देश के शीर्ष 11 बिल्डरों पर 38,000 करोड़ रुपए से भी ज्यादा कर्ज है। एलआईसी हाउसिंग फाइनेंस के चीफ एग्जिक्यूटिव ऑफिसर वी के शर्मा ने बताया, 'प्रॉपर्टी की मौजूदा कीमतों को बनाए रखना मुश्किल है। मुंबई और दिल्ली के प्रॉपर्टी मार्केट में निवेशकों का काफी दखल है। इन जगहों पर सबसे पहले असर पड़ेगा।' एलआईसी हाउसिंग फाइनेंस सरकारी कंपनी है, जिसकी देश के होम लोन बाजार में बड़ी हिस्सेदारी है।

    शर्मा ने कहा कि त्योहारी सीजन में मुंबई और दिल्ली में घर 10 फीसदी तक सस्ते हो सकते हैं। उनके मुताबिक, कंपनियों के सामने बिक्री बढ़ाने का यही अकेला रास्ता है। बड़े बिल्डरों का कहना है कि सप्लाई बढ़ने पर ही कीमतें कम होंगी। हीरानंदानी कंस्ट्रक्शंस के मैनेजिंग डायरेक्टर निरंजन हीरानंदानी ने कहा, 'आरबीआई की सख्त मौद्रिक नीति के कारण डेवलपरों के पास प्रोजेक्ट पूरा करने का पैसा नहीं है। ऐसे में रियल एस्टेट की सप्लाई नहीं बढ़ेगी और मांग में कमी भी नहीं आएगी। ऐसे में सप्लाई बढ़ाई जानी चाहिए न कि इसे कम करना चाहिए।' उन्होंने कहा, 'डेवलपर तब तक अपने स्टॉक बनाए रखेंगे, जब तक उन पर कर्ज का बोझ बहुत ज्यादा न हो जाए।'

    हालांकि, बाजार से जुड़े लोग इस पर एकमत हैं कि मुंबई और दिल्ली-एनसीआर के प्रॉपर्टी बाजारों में जल्द ही कीमतें गिरेंगी। कोटक रियल्टी फंड के डायरेक्टर वी हरि कृष्णा ने कहा, 'मुंबई और गुड़गांव में गिरावट आनी तय है, प्रॉपर्टी के दाम 15 फीसदी तक गिर सकते हैं।' कोटक रियल्टी फंड, कोटक बैंक की प्राइवेट इक्विटी इकाई है।

    नाम जाहिर न करने की शर्त पर एनसीआर के एक बड़े बिल्डर ने कहा, 'हम उम्मीद कर रहे हैं कि दाम कम न हों। ऐसी संभावना है कि त्योहारी सीजन में दाम कम किए जा सकते हैं, जब लोग नए घर खरीदते हैं।' उन्होंने बताया कि जिस बैंक से वह कर्ज लेते हैं, वह और पैसा देने से मना कर रहा है। बैंक ने कंपनी को कम दाम पर प्रॉपर्टी बेचकर कर्ज चुकाने के लिए कहा है। अभी तक बिल्डर इससे बच रहे हैं। उन्हें डर है कि प्रॉपर्टी के दाम घटाने से कहीं भारी गिरावट की जमीन न तैयार हो जाए।

    कई बैंक अधिकारियों और निवेशकों ने ईटी से कहा कि वे रियल्टी परियोजनाओं की निगरानी बढ़ा रहे हैं और डेवलपरों को इनवेंटरी खत्म करने के लिए मना रहे हैं। रियल एस्टेट रिसर्च फर्म लियासेज फोरास के आंकड़ों के मुताबिक, पिछली कुछ तिमाहियों से हैदराबाद को छोड़कर देश के शीर्ष 6 प्रॉपर्टी बाजारों में इनवेंटरी बढ़ रही है।
    CommentQuote