Monday, January 07, 2008

Real estate plateaus

in Bangalore, sort of. Atleast according to news reports. Why? If I were to put it very simplistically, there are two reasons.

Investing in real estate is a hobby in Bangalore. It was always a hobby for some segments (read businessmen, government babus, sons of the soil), but with IT chaps getting in the picture the market suddenly became larger and smaller at the same time. Larger because many far off tracts opened up and are still opening up and smaller because they were also quite choosy. So, property prices began to rise and coupled with more jobs and more people settling here, it was a nice cosy cycle.

And it will continue, as long as newer companies are set up and the IT boom keeps going - point being, for anyone else to buy houses, there has to be a similar boom.

But as IT hits a slowdown (well, or atleast slightly reduced growth, margins) the compensations reduces. As the dollar value goes down, the amount of money that comes in from onsite postings reduces proportionately. And the future value of compensation is a little uncertain. Why future? Even the present is uncertain thanks to variable components that are the norm in this industry. Then the fact that IT is no longer only Bangalore - it never was, but IT is slowly taking wings in many other parts, so a migrant driven IT in Bangalore might see many families slowly going back to their hometowns - ranging from Hyderabad to Trivandrum to Chennai. In other cities like Bombay and Delhi for instance, money is from multiple sources each with a critical mass. Business, stock markets, mafia (lets not pretend it does not exist) - all of which are surely present to a smaller extent here too, though I think IT is the driving force in Bangalore.

So, will prices go down? Not so soon - they have plateaued for now.

But if interest rates go up and the IT industry faces a protracted slowdown, perhaps yes. At this point, interest rates may actually go down and talk slowdown in IT is a little premature, but cross your fingers depending on which side you are.

1 comment:

Anonymous said...

excellent analysis...and if a meltdown happens, it might a good time to invest in the real estate for the next boom ...so lets keep our fingers crossed ;)