Master The Art Of Overcoming The Real Estate Bubble With These 9 Tips

Owning a property is a significant accomplishment for anyone. In India, owning a residential property is often considered a symbol of fortune and success. However, experienced real estate investors will tell you that making profitable investments in residential and commercial properties requires more than just good luck. It requires careful evaluation of the market, understanding of the trends, thorough research and financial acumen to make the right decisions for your investments. Let us take a closer look at the phenomenon referred to as the real estate bubble and how an expert investor can overcome it.

What is a real estate bubble?

A housing or real estate bubble is a period during which property prices increase rapidly. Most commodities and services experience a gradual increase in prices due to market forces such as increased demand and inflation. However, in the real estate sector, there is often a phase when home buyer interests are piqued. Along with other economic factors, like low loan rates or high market liquidity, such demand can increase property prices dramatically. This is called a real estate bubble.

Real estate speculators also invest during this period, further increasing demand and prices. However, such a rapid increase in home prices is not sustainable. When prices become untenable for the average buyer, the sector soon experiences a sharp fall in demand and a sudden price decrease. This is referred to as the bursting of the real estate bubble.

Homebuyers who invest in real estate when the property is overvalued often find their assets depreciating quickly and struggle to resell the property if necessary.

Tips to overcome the real estate bubble

1. Study the local market – The very first thing any prospective homebuyer should do is study the real estate trends in the local market. For example, if you plan to invest in Mumbai, you may want to look up property prices over the past five years.
2. Consider the locality – A sprawling city like Mumbai may have macro trends, but the neighbourhood or locality will always determine the ideal price of your real estate investment. Chembur, Goregaon, and Andheri East are excellent micro markets with very different property prices.
3. Learn about infrastructural development – Before investing in real estate, it is a good idea to research the upcoming infrastructural developments in the area. For example, the upcoming international airport in Navi Mumbai will likely drive up property prices. Any investment must be backed by careful study and research.
4. Partner with a reputed developer – Considering the developer's reputation before investing in a flat or apartment is vital. If you are investing in an under-construction property, it may take 2-5 years before you gain possession. Considering the builder's track record for delivering good-quality residences on time will help your asset grow in value and protect your investment.
5. Lifestyle factors – A flat or apartment in a good locality with a robust social infrastructure will retain its value despite market volatility. Look for a project with great amenities and facilities that elevate the lifestyle of the residents. If you need to resell your property, these factors will add to its value.
6. Home loan interest rates – Home loan rates fluctuate depending on RBI policy. It may be worth opting for a fluctuating interest rate if the economic outlook suggests that interest rates may dip. This way, your interest payout will decrease if the housing bubble bursts.
7. Budgeting wisely – When a real estate bubble bursts, repaying the home loan becomes challenging. Planning your monthly budget and EMI payment before investing in real estate is a good idea.
8. Protecting your investment - Various financial products can help you safeguard your investment in case of unforeseen circumstances, such as loss of employment, inability to repay EMIs, or the unfortunate death of the loan recipient. As a homebuyer, you can protect your property by opting for home loan insurance or term insurance that is equivalent to the property value.
9. Get professional help – It is always a good idea to consult a professional financial advisor specialising in real estate before taking a home loan or estimating your tax deductions. Financial planning is key to riding out a housing bubble and investing when the prices are reasonable.

Conclusion

It is important to avoid overspending due to the fear of missing out when buying a property. The decision to purchase a property should be based on your needs and your family's future. Many people suffer losses during real estate bubbles due to impulsive buying and poor financial planning. It is crucial to take your time, do your research and plan your finances properly to make the right decision.