Chartered accountant Sandip Yagnik, 62, has been looking to buy a flat in the booming Mumbai suburb of Andheri. But he hasn’t found much that he can afford.
Yagnik may have a reason to smile now: experts say property prices could fall by 20-25 per cent in the next 6-8 months if the volatility in the stock market continues.
The bearish trend on Dalal Street has started affecting real estate prices in metros like Mumbai and Delhi. “Property prices had reached unrealistic levels, and the market boom was a major driver. I expect prices to fall by 25 per cent due to the crash,” said Jaydev Mody of Mumbai-based realty firm Arrow Webtex.
Mody’s prediction has a basis. In 1994, when the Sensex touched a high of 4,634.85 points, real estate prices shot up. But three years later, the market entered a bearish phase, and the realty sector took a hit. “When the Sensex was down in 1997, realty prices dropped,” said Vijay Bhambwani, a Mumbai-based equity analyst. “Stock and realty markets are interlinked.”
Realty prices started rising as the Sensex began rising in 2003. Prices have since gone up almost 300%, said Mody.
There are other indicators too. Stocks of realty companies have fallen 25-35% in the past month, as the Sensex shed 18%.
The share price of realty major DLF has dropped to Rs 602 from Rs 1,225 two months ago. Companies like Omaxe, Puravankara and Kolte Patil Developers, who recently entered the market through IPOs, are trading below offer prices.
Some experts say the market meltdown is only one of many factors in determining realty prices. Vivek Dahiya of consulting firm DTZ says: “The 15-20% correction that is happening is more because of lack of demand and oversupply.”
As stocks plummet, speculators who drive real estate rates are likely to stop investing in property. “Lesser demand will trigger a correction,” says Delhi-based broker Rajesh Arora.
But some are putting up a brave front. Hemant Shah of Akruti City Ltd says: “My buyers are not stock market players. The impact, if any, may be felt after three months.”