Why Real Estate Investments will not do well now?

Valuations are high in the real estate market Real estate in India has bucked a trend of non performing asset classes. Real estate has outperformed equities, currency and bonds by a wide margin. Table 1 shows the performance of various asset classes in India over a two year period from June 2010 to June 2012. Going by India’s real estate market performance, one would be inclined to conclude that India is actually not seeing any economic slowdown and any statistical number thrown up on GDP growth is just plain statistics. India’s GDP growth for the fourth quarter of 2011-12 came in at a nine year low of 5.3% taking down the full year growth to 6.5% from levels of 8.4% seen in 2010-11. Economists are busy revising GDP forecasts from above 7% levels to levels of 6.5% and below for 2012-13.rnIn fact a disturbing trend emerging with the general investing public is that while India’s equity, bond and currency markets will reflect the poor show of the economy and reflect global issues of debt crisis in Eurozone and property bubble bust in China, the real estate market will continue on its upward trend. First time home owners are busy exhausting savings and pledging gold and other assets to buy property while one home owners are buying their second and third homes or even land in the belief that property is the best investment going around.rnWhen it hits, it hits hardrnWill then trend of real estate outperformance continue going forward? The factors that go into driving real estate prices are definitely negative and will continue to remain negative going forward. The factors include lending rates and terms, price to income ratios and rental yields. Taking each by turn.rnBank lending to real estate is facing headwinds. On a consumer level, interest rates have gone up by at least 300bps over the last couple of years while loan to value ratios (LTV) have come down from 90% to 80% and below. Consumers will have to put in more upfront money to take a loan at a higher interest cost given the rise in interest rates and decline in the LTV ratio.rnThe fact is that in a slowing economy income levels have not kept pace with the rise in property prices. Income levels in the economy are rising at low double digit levels for those who can actually think of buying property, while property prices are expected to go up by at least 25% every year.rnRead More. . . rnVisit : http://investorsareidiots.com/2012/06/corruption-factor-should-not-be-the-reason-to-buy-property-2/