Theory and Practice - the economics of Real Estate

"In theory, theory and practice are the same. In practice, they are not."

Albert Einstein

Many pundits preach the view that 'Value' of the property is more important than prevailing interest rates in making a BUY decision. In theory, it sounds good but in practice low interest rates and liquidity driven by loose monetary policies seem to be the driving force for property repricing. Waiting for the elusive value could be a trap. I am not advocating buying at high prices but waiting for prices to fall could result in a disappointment. 

A likely scenario is a time correction and not a price correction.

 

Many also make light of appreciating property prices quoting "property prices don't increase, money value falls'.  Whatever said and believed, for the unsophisticated investor, in a loose monetary policy scenario, RE in a growing market with jobs and growing domestic economy is a good inflation hedge against anticipated higher inflation post the low interest rate regime. 

Kotak Mahindra Bank HL starts @6.65%, HDFC Ltd @6.7%

For perspective:

The interest rate on home loans in India now stands at 6.7%.

1 crore home loan translates to Rs. 75,000/- EMI

It was 10.5% in 2014.

Back in 2014, on the same loan, EMI was 100K

A 25% or Rs. 25,000/- savings/month.

The difference between yield and interest rates is reaching an all time low.

Fixed and risk free returns are falling and sometimes post-tax returns are below inflation rate.

Income growth has been respectable which makes it easier to afford a house in this low interest scenario