Posted on october 7, 2014

Sentiment driven real estate – Part I

The economy propelling, GDP constituting and growth stimulating factor of a country has always been the real estate sector. It has thus been an active catalyst in fluctuating the market indexes. Real Estate sector has undergone unprecedented changes in the last few decades and has been at the forefront of the Indian economy. Constituting about 11 per cent of the GDP, it is one of the fastest growing sectors. The industry has seen growth in all its sectors namely, residential, commercial and office spaces.

Real Estate markets are highly susceptible to sentiments and plays a very significant role in the decision making process of investors, developers and consumers. Market sentiment is the psychology of the crowd participating in the activity and the price movement of the securities traded in the market. Various factors combine to determine the underlying sentiment of the market.

Supply lateral –

The major chunk of the housing market comprises of the supply industry. Only when the supply lateral is fully adept, can the construction set off. Land, raw materials and labour are the three major requirements that twitch building the houses. An increase in the availability of land will shift the supply curve to the right direction. Availability of labour is also important. For example, a shortage of tile-layers would reduce the supply of new houses. The supply and demand levers are like the hot and cold spigots and the volume of these levers are controlled by factors such as unemployment, consumer confidence and technology, among others. A change in the balance between population growth and housing supply could be a determining factor too.

Economic Growth –

A person’s income is the deciding factor to buy a house. With higher economic growth and rising incomes people will be able to spend more on houses; this will increase demand and push up prices. Past few years have been a period of sluggish growth across all sectors in India. The drastic slowdown in economic growth rate from a high of nine per cent to below five per cent, the fall in the value of Indian rupee, and above all the fluctuations in the government, have had a negative impact in the inflow of foreign institutional investments, or FIIs, and foreign direct investment, or FDI, which in turn had adversely affected all asset classes in the real estate sector.

Government –

A stable government can positively influence a country’s real estate industry. Likewise, any change in the government can create uncertainty in the market. Investor sentiment in the Indian real estate sector is becoming increasingly positive with the prospects getting brighter for the formation of a stable government.

Unemployment –

Economic growth and unemployment are inter-connected. Clearly when rate of unemployment is rising, less people will be able to afford a house. But, even the fear of unemployment may discourage people from entering the property market space and may shed excess space adding to the vacancy and availability rates. It is easy to see how the fundamentals of real estate are most stressed when unemployment reaches its peak. Unemployment has emerged to be a sharp indicator of the real estate market.

The real estate market relies heavily on the aforementioned dynamics. Realty market is both important and complex. Dynamics of the market can significantly impact the cost of living, net worth of households, countries’ cyclical economic performance, and the wider financial system. Outcomes in residential property markets can be influenced by a range of factors. It thus becomes essential to plan a project keeping these elements in mind. At, Saran Developers the team takes a closer look at the market sentiments to gauge consumer behaviour such that efficient projects can be developed to create positive sentiments in the consumers.