Sunday, 23 December 2012

Real Estate price correction in Patna

Patna City's Map

In a real estate correction globally and therefore our city Patna is not an exception to this universal phenomenon, a property market changes from a sellers' market to a buyers' market. Demand for homes decreases and the value of one's property goes down. Every kind of property owner - be it end user or investor - worries about the property market going down and prices 'correcting'. The word 'correction' in itself implies that there is something wrong which needs to corrected. The prices need to come to a fair valuation; they take a breather before starting the journey again.

In the first place, real estate corrections do not happen on a national, state or even city level. It means that the whole world or country or even a city like Patna would not be completely engulfed by property price correction in one go. If and when they occur, they occur in areas of cities where there are a lot of apartments which are priced too high. When the prices come down, demand picks up again, so the local market has 'corrected'. The correction therefore tries to establish an equilibrium in demand and supply of real estate inventory.

However, there can be many more reasons why there are more flats on the market than people are willing to buy. Unwillingness to buy can be for many reasons:

- Flats are available, but not in the budget category where the highest need is.

- Flats in the right budget category are available. However, the economy is weak and people are uncertain about their jobs - and therefore hesitant about making a home loan commitment. And we know that it is the private sector which is emerging as the major source of jobs in Bihar. The first boom in property prices in Patna was driven by government job holders with sixth pay commission increasing the salaries in government sector phenomenally. 

- Home loan interest rates are exorbitantly high and therefore not affordable. 

If one or more of these factors prevail, people will not prefer to buy homes and instead opt for rental properties. As a result, property investors in Patna who want to make a quick buck out of residential property by buying cheap and selling higher stay away. But even in such a market, investors who look at property as a source of regular rental income continue to look for good opportunities and thrive in a rental-driven market.

As far as the national economy is concerned, things are already looking up in India. Inflation is coming down, and the RBI has indicated that home loan interest rates will start decreasing from January 2013.

Meanwhile, employment is looking up. Indian companies - especially in the healthcare, manufacturing and Information Technology sectors, are already on a hiring spree. With more jobs comes more demand for homes. Unfortunately in and around Patna job creation still lags behind the national average significantly.

Now let us have a closer look at Patna - as a property market. Patna's overall fortunes are generated by these factors- it is the capital of the state, Bihar has a population of 10.5 crores, economically we have been a backward state and any socio-economic and political development is reflected in the development of capital city Patna, the present regime has given Biharis a hope for development and the high migration rates of earlier decades since independence is generating high remittance income.

What Patna lacks is the “urbanization” and a “vision” for structured development in the true sense.


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