Final Real Estate

8/8/2019 Final Real Estate

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PARTICIPANTS INVOLVED IN REAL ESTATE MARKET


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CONTRACTORS: - Real estate contractor can be described as a

person, who carries out a contract that is related to building of

architecture or providing the building material. In some cases, a

contractor also provides labor for the construction purposes. All

real estate contractors are professionals and licenses that permit

them to perform certain tasks as mentioned in the license. Some

real estate contractors also provide services related to remodeling

of buildings, roofing etc. Some contractors also provide services

after the completion of the construction work i.e. maintaining the

structure etc.

BANKERS: - Real estate investment banker provides

innovative approach to financing of real estate. There are

many types of services carried out by real estate

investment banker and these services are far beyond the

traditional banking services being offered. For example,

structuring of various types of real estate projects is one

main type of service provided by real estate investment

banker.

AGENTS: - Real Estate Agents are employed by the seller to

get the best price and conditions for the seller. Real Estate

agents have been helping buyer to buy and seller to sell the

property. Real Estate agents are Present in every corner of

world. They all act as middlemen between the Buyer and the

seller.


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BROKER: - A Real estate broker finds buyers for

those wanting to sell real estate and finds sellers for

those wanting to buy real estate. Real estate brokers

help sellers market their property and sell it for the

highest possible price; they also help buyers

purchase property for the best possible price. Once

the broker successfully finds a buyer, the real estate

broker receives a commission for his or her service.

LESSOR: - They have the complete ownership of the

property but they lease or mortgage their property to

someone else. High amount of rent is charged by the

renters. These people are pure consumers.

MORTGAGER: The security created on the property by

the lender, which will usually include certain restrictions

on the use or disposal of the property (such as paying any

outstanding debt before selling the property).


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TENANT:-When a land owner or a house owner allows

someone to use his/her land or house in some way for

some time period, then the person who takes for lease

from the owner is called as a tenant and the relation

between them is called as tenancy. The tenant will pay

the rent for the leased property to the owner.

BUYERS: - Buyers are one who purchases the

property. Buyers are the one who have

bargaining power. They pay for the property.

The property can be in any form. (Residential,

commercial, retail).


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FACTORS AFFECTING REAL ESTATE PRICES

FACTORS AFFECTING REAL ESTATE PRICES

Real estate is the second important source which generates economy in our country. Real

estate almost contributes about 6 percent to gross domestic product (GDP). Therefore the

property prices, demand, supply and many more plays a vital role in Real Estate Sector.

Infrastructure: -Infrastructure is always a major driver

for price growth.Availability of social infrastructure in

the location will affect the demand. Places with better

infrastructure like rail and road connectivity and basic

amenities like hospitals and schools, car parking space,


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maintenance services and many other benefits will lead to demand and increase in the prices of

property.

Location- Location is one of the most important factors

affecting real estate prices. Slopes, soils, hydrology, land

availability, Distance to employment sources, Distance to

shopping, Availability of amenities (water, restaurants

and shopping, golf, parks), Neighborhood factors: age of

surrounding housing stock, schools, crime and many

more are the factors which affect the real estate prices.

Properties in such places affect real estate prices in

positive sense. Good amenities lead to higher prices and

more demand.

Sentiments: Positive sentiments in the market and

economy will lead to better demand. People when

confident about a sustainable source of income will

be more comfortable in making property buying

decisions.

Demand & Supply- Population change is the key

driver of demand. When an area becomes popular

more people want to live there. Given there are

fewer dwellings than interested parties, prices

increase and vice-versa. The other driver is

availability of land.


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Affordability and availability of money-

Affordability is the relationship between housing

prices, interest rates and wages. It's the cost to the

owner or investor to retain and enjoy a property. When

prices, interest rates and wages reach a ceiling in a

particular area, residents often realize they can have a

better lifestyle elsewhere.

The resources boom-The demand for skilled and unskilled

workers is increasing day by day. And with an increase in

their salary scale, these workers seek to improve their

lifestyle by buying bigger and better homes, or maybe an

investment property or two.

Inflation- Inflation is a rise in the general level of prices of goods and services in an economy.

As the prices of goods increase the whole money management of people is affected. This affects

the demand in real estate. Less demand leads to fall in prices of realty.

Interest rates- An interest rate is the cost of borrowing money. Among the many industries

affected by fluctuations in interest rates, real estate and banking are perhaps the most directly

impacted. When interest rates increase, borrowing becomes more expensive, dampening

FALL IN PRICESLOW DEMANDINFLATION


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consumer demand for mortgages and other loan products and negatively affecting residential real

estate prices. (Low interest rates = higher prices; high interest rates = lower prices).

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Recession- Recession is the most important factor affecting the

real estate prices. Recession is nothing but the economic

slowdown. It is a tense mood having features like downsizing,

deductions in salaries, less investments, unemployment,

insolvency etc. If people do not have money and bankers do not

have money to give loan then its directly going to affect the real

estate prices. As it is common principle of real estate low demand

then fall in prices and high demand then increase in prices of

property

Demographic factors- One cannot sell an IPod to

deaf and a television to blind. Same is with

demographic factor also. A seller should divide the

market into three- higher income group, lower

income group and middle income group. If he tries

to sell a high priced property to lower income group

then it is definitely going to affect the prices in

negative sense i.e. he will have to reduce the prices

of huge property. Changing age profiles also affect

Low interest rates Higher prices

High interest rates Lower prices


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the prices. Greater young population will create more demand and will also bring increase in

price level of property vice-versa.

Legal frame work- Legal frame work is also an important

factor affecting real estate prices. The registration and

documentation of real estate is complex and costly. Buyers

are not ready to pay much amount after going through legal

framework.

Fluctuations in prices of inputs- Input includes the

raw material used for construction. Many builders tend

to stop work when the prices of inputs like cement; iron

etc goes up so as to wait for the time when they expect

the prices will come down. This result in unnecessary

delay in the work and the cost of wasting time would

actually be more than the increase in price.

Economic Factor- Economic factor is nothing but the

national income of the salaried persons. The distribution of

national income, per capita income directly affects the

purchasing ability of individual and the employment isclosely related with the housing development.


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IMPACT OF RECESSION ON REAL ESTATE MARKET

After seeing a continuous rise in demand and prices for the last few years in the

residential market the market is facing a sudden downturn. All the markets have bearished. This

all is just because of US subprime crises.

Impact of Recession on Indian market:-

A recession is when GDP growth slows, businesses stop expanding, employment falls,

unemployment rises, and housing prices decline. Due to subprime crises there was a recession all

over world. A recession had far-reaching impact on whole world. The US subprime crises also

affected India as there were many foreign investors like Lehman brothers, Bear Sterns, Merrill

Lynch, AIG etc. These investors or lenders almost become bankrupt. Thus leading to fall inproperty prices in India.

REAL ESTATE industry is taking on correction period all over India. Brokers,

especially, seem to be convinced that the market is set to fall. In many areas, the property rates

have already started falling.


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Pune, Nashik, Noida, Jaipur, Bangalore, Chennai and Hyderabad are also feeling the cold

wave in the property market. Reason for the same is related with hike in housing finance interest

rates and unaffordable property rates.

Investors are, now, not buying any property and have stopped going in for more

investments. Practically, when no one buys, rates are stagnated at some particular point. That is

what is happening today. The sale price has stopped further climbing up, since there are no

takers. Malls are worst hit. The recession started with them, while the exhibiting rates were much

less than the actual investments made.

It may be a recess. For the time being, investors want the market to show its true colour.

And after they sell off certain non moving stock, buying spree may start again afresh. It is also

linked with the liquidity crunch in the economy and falling stock exchanges in the country. A

lobby of investors does not want share market money to go easily from the real estate market.

People, who have invested in real estate from earning of share market, want an exit to pay off the

liabilities created by them in the share market. Players in real estate market want the rates to stop

climbing up for some time, so that they can capitalize on such panic sale. Big game plan is on the

hands of few groups of individuals and few finance companies that have entered recently in the

trade.

A slowdown in the construction sector potentially has large knock-on effects on the

economy as the sector directly accounts for 7.3% of GDP, its backward linkages in terms of the

sectors usage of iron, steel, cement etc., and forward linkages to other sectors, impacts an

estimated 14% of GDP.

Realty companies that had raised funds through the capital markets and private equity

funds suddenly started finding themselves in a soup. Funding options began to dry up. Asset

values fell. Stock markets took on a bear run. Stock valuations of realty companies plunged and

inflation reached alarming proportions. The RBI raised key rates to curtail money inflow in the

system.

Builders, today, have started to reduce the price everywhere in the country. Ready stock

is still not available, as the builders have already sold 30 to 50 per cent of their stock, during

under construction phase, to investors. As the investors want handsome returns on the finished


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stock, while they do not sale in the open market, but through the builder only. That stock again is

sold by the builders to the actual buyers by mounting another profit margin. Hence, when the

actual user buys the property, he has to pay investors hidden margins, which change hands five

times during the time of construction.

The fall in collateral will also hurt firms balance sheets, increase their funding costs, hurt

confidence, and reduce investment demand. However, the impact on demand will be lower than

in developed countries.

Banks hiked consumer loan rates as also home loan rates. Corporate waking up to

pressure on expenditure began to announce layoffs, salary cuts and many such cost cutting

measures. Cautious consumers battling multiple whammies began to put off home buying

decisions. Demand has since stagnated and fallen drastically.

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