Saturday, 21 September 2013

Is real estate in Patna next in line to collapse?


Buy sell rent Patna

While the spotlight so far has been on the rupee and the equity markets in Newspapers and media in general, real estate prices in Patna have started to bear the impact as well. Patna as surveyed by the National Housing Bank (NHB),  saw a drop in property prices during the April-June quarter of 2013, compared to the first quarter of this calendar year. All-round squeezes in liquidity and dearth of buyers have led to a fall in property prices in Patna.
 
Developers in Patna who were holding on to their prices despite sluggishness in demand have blinked first. Yet many experts feel that there is more to come.
 
It seems that the endgame of speculation in Patna real estate has begun. A multitude of factors are converging after a decade, setting the stage for a deep correction in real estate in Patna. The story in real estate Patna has all the ingredients of a making of a bubble.


 Real estate prices in Patna are among the highest when compared on a per capita basis. Rent yield in Patna, which can be used to compare returns within real estate across states as well as to compare across asset class, is one of the lowest in the country.
 
 
RBI is sucking out liquidity like a sponge and the sector that will be the worst affected is real estate. The fall in property prices is likely to start from the deleveraging cycle by Indian banking sector which is running a multi-decade investment to deposit ratio of 108 per cent. Balance sheets are expected to be deleveraged over the next three-four years. The previous deleveraging cycle in 1997-2003 saw real estate prices correct by 50 per cent.
 
Adding to the liquidity crisis is the likely exit of private equity (PE) players from the market. Average life of private equity in real estate is seven-eight years. Year 2013 marks the beginning of private equity returning back to shores. PE players entered India at an exchange rate of 45; they will now be exiting at around 70 levels a loss of nearly 50 per cent in currency conversion itself. The exit of PE funds will create a distress sale situation in the real estate market in Patna, shortly leading to depressing price situation for the next 18 months.

Unless the government deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations on how Patna on its way to prosperity by speculating on a piece of land eventually lost a fortune.