WHEN IS THE RIGHT TIME TO BUY RESIDENTIAL REAL ESTATE.

 2021 SEEMS TO BE BEST TIME TO BUY REAL ESTATE

Real Estate has gone through a low cycle since Year 2016 and it is now definitely poised for upward trend.  There seems to be lot of excitement in present times to invest into liquid funds and stock market and this has resulted into stock market touching new highs in almost every trading session. Stock market is an early indication into how economy is about to evolve. This Trend is stock market is seen since last two years (Market had drastically corrected during February, March and April of 2020 due to Covid Panademic and since then market has not given any weightage to Panademic and has only gone up. Prices of Gold are also increasing significantly. Real Estate has its own pace and it generally lags behind other sectors. 

The real estate cycle comprises four main phases: recovery, expansion, hyper supply, and recession. This implies that historically, there has never been a sustained expansion or hyper-supply period without an eventual recession, followed by recovery. This may induce some anxiety for you as a real estate investor, but fear not! The great news here is that investment strategies make it possible to invest successfully across these cycles.

Land, together with labor and capital, is one of the three major factors of production. As population grows, additional people need places to work, sleep, eat, shop and be entertained. Historically the supply of buildings to meet these needs has been “lumpy,” with too little space available during times of rapid growth and too much supply when growth slows This lag between demand growth and supply response is the major cause of volatility in real estate market cycles. 

Real estate cycles can be separated into four distinct phases based upon the rate of change in both demand and supply. Figure 1 depicts the market cycle in terms of occupancy rates. Occupancy is the difference between total supply (including newly constructed space) and effective demand as measured by absorption. Markets are defined as having two up-cycles (recovery and expansion) when demand growth rates are higher than supply growth rates, and two down-cycles (hypersupply and recession) when demand

growth rates are lower than supply growth rates. In reality, markets always have either demand growing faster than supply or supply growing faster than demand. The demand and supply growth rates are equal only at the peak and trough of the market cycle, with existing space plus new construction exactly matching new demand. Because the trough point is a time when oversupply is ending and low demand growth is turning positive, the only equilibrium point is at the peak of the market cycle where supply growth has caught up with demand. After this peak, either the demand growth rate begins to slow or the supply growth rate accelerates. This peak may occur numerous times as a market moves between growth and hypersupply phases, since future demand cannot be accurately predicted and supply does not react instantaneously to demand changes. The long-term occupancy average (LTOA)--also called the normalized occupancy level--for each market is a significant point in the cycle, as the market goes through this LTOA both during an up-cycle and a down-cycle. However, the interaction between supply and demand above and below the LTOA point is very different. The historic midpoint in the cycle can be identified by a LTOA rate calculated over a number of historic cycles. Looking forward, this forecast LTOA must be adjusted for current demand and supply characteristics. The LTOA is different for each property type and each metropolitan market. Similarly, data reveal that cycle durations and magnitudes are different for each market and each property type. 

We are deinitely in the Recovery phase of Rel Estate, Demand has started picking up and number of construction / new launch has gone down. Now is the time to start on the up curve which seems to be here for next 4-5 years.

All the best and hope you will say thanks when we connect again in couple of years!

Pritam Mutha.

JM Urban Spaces.

jmurbanspaces@gmail.com

www.jmurbanspaces.com