Crash in real estate prices unlikely: Trammell Crow Meghraj

Q. The rapid increase in property in past one year is raising fears in my mind about a crash as it happened in stocks in May this year.
Stocks and real estate are two different asset classes. Real estate has low correlation with stocks and is less volatile. Rising income levels, favorable demographics and changing consumer preferences are the key drivers of the boom in retail real estate. So, any crash is highly unlikely.

Q. What is the impact of interest rates increases on retail properties in Mumbai like malls and shops? 

There will not be any impact on the revenues and selling prices. The only impact will be on borrowing costs of bank loans i.e. financing side. But access to newer funding options such as foreign and domestic venture capital funds, high net-worth individuals and real estate mutual funds will moderate the impact.

Q. What would be the impact of a crash of housing properties and US dollar on Indian retail properties? 

As already explained, there are no signs of a crash. Only chances are for a moderate correction. Retail sales and consumption patterns have very little correlation with housing prices. In case Dollar crashes, Indian retail properties will become expensive for foreign investors. But chances of Dollar crashing against Rupee are negligible as of now.  

Q. What is the impact of companies like Reliance entering retail on retail properties in Mumbai? 

There is already a shortage of real estate in Mumbai. Entry of Reliance and other companies into retail will result in higher demand for retail space. Thus, prices of retail properties will go up in Mumbai.

Q. What would be the impact of opening up of FDI in Retail on Retail properties in Mumbai? 

FDI in retail will result in entry of foreign players and thus, higher demand for retail space. This will also result in consolidation of industry and higher mall revenues. This will boost retail capital values in Mumbai.

Q. What is the impact of opening of FDI in construction on Retail Properties in Mumbai? 

FDI in construction will provide an impetus for retail property development. This will provide the necessary supply of retail space in Mumbai. This will help in long-term stability of retail capital values.

Q. What is better as a retail property investment - is it better to invest in malls in eastern suburbs or is it better to invest in western suburbs? 

It seems prudent to invest in retail space in western suburbs. This is so because there are fewer malls here than in eastern suburbs. Still more supply is expected to come into eastern suburbs. Thus, from demand supply perspective, Western suburbs appear more attractive. 

Q. I have seen some news reports of prices of real estate already falling by 10 to 20% in some areas. Is that really true and in that case what is the future expectations? Does that effect newly constructed properties or otherwise?

This might be true of some over-heated areas. But, key drivers of the boom are still favorable. Thus, overall real estate sector looks attractive for a long-term investor.

Trammell Crow Meghraj Property Consultants will answer all your property related queries. If you have any queries on investing in property, mail us at property@moneycontrol.com .

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