5 Reasons Why Property Prices Will Swing Upwards

Most of the buyers have been putting their home-buying plans on hold as they await key legislations to come into effect — while the real estate law became effective on May 1, the Goods and Services Tax law is expected to come into force in July. After the key legislations are in place, it would become much safer to invest in real estate. However, there is a price to be paid for enjoying this security—property prices across India are likely to shoot up in the near future by as much as 10 per cent, say experts.

Here are five reasons owing to which property prices will swing upwards in across real estate markets in Indian cities:

According to trends recorded by PropTiger.com, property prices in India's major cities have not seen much appreciation in the past three years. This technically means that property values have depreciated in the past. Despite that, home sales have not been encouraging either. This has resulted in the profit margins of real estate developers getting thinner and thinner while inventory stock swelled. With the market sentiment likely to turn positive in the light of new developments and capping on the supply side, prices might see a spike in the times to come.

While prospective buyers eagerly waited for the Real Estate (Regulation & Development) Act, 2016, to come into effect, developers would have liked if they were given more time to comply with the new norms. After all, many of them run the risk of getting weeded out of the sector. As their focus shifts to making themselves law-compliant, project launches will go down. The need to finish ongoing projects will also be pressing, curbing the supply further. This will push prices of  existing stock upwards.

Under the new regime, defaulting developers will be responsible to duly reimburse buyers. This means they will need a financial cushion to fall back on in case for some reason they do not stick to the completion deadline. This is turn would goad them to hike prices. In a scenario like this, discount schemes will be far and few, further pushing prices upwards.

One can't always blame developers for the delay in projects. But, the cost burden for consumers will still rise in the end. House of Hiranandani Chairman and Managing Director, Surendra Hiranandani has summarised it well.

"The World Bank in its report on Ease of Obtaining Construction Permit Index ranked India 185 out of 187 countries. This means India is in the same category as war-torn countries where institutions have collapsed," Hiranandani told The Economic Times. "The Act does not bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. If approvals are not streamlined in time, cost revisions and delays will become unavoidable. The outcome of this is going to be more expensive products for consumers.

At a time when the sector was reeling under the pressure of slow growth in terms of sales, the Centre's demonetisation move came as a bolt from the blue upon the developers. Their troubles only multiplied after November 8, the day on which Prime Minister Narendra Modi in a surprise television address announced his government was going to ban currency notes of high denominations. While many had yet to figure out how to shake the impact of the move in the period that followed, the pressure to face several upcoming regulations kept building. Amid this mounting burden on developers, price appreciation of properties looks like the only way forward.

Also Read: Expecting Property Price To Fall After Demonetisation Move? You May Be Disappointed