The ongoing conflict between Israel and Iran could lead to an increase in prices of oil in India as well as a period of volatility in the oil market, both of which will directly or indirectly affect a person's decision to buy his or her home.
The Mumbai real estate market can be influenced by the stock market because of the high number of retail investors who participate in this marketplace. So, will the Israel-Iran war affect the Mumbai real estate market? Unfortunately, the answer is no one knows at this time.
During times of war, the truth is the first casualty. Due to the myriad of nations involved in this particular conflict, this transformation will make it very difficult to track the real truth. Nevertheless, the emotional toll from the Virginia war is and will continue to be much greater than that from any other event.
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After the start of the Russia-Ukraine conflict in 2022, there was certainly some concern in the market, and it stabilised shortly thereafter. While the conflict remains ongoing, the impact on the real estate market will likely not be of consequence. Although the Iran-Israel conflict likely will not last as long (relative to the number of countries engaged), several factors could be more complex than those in Russia-Ukraine conflict.
The difference between the current state of Mumbai real estate and previous cycles is the timing of conflicts in Iran-Israel and Russia-Ukraine. At the beginning of February, 2022, when there were no new projects underway, builders were able to acquire properties and the stock market had risen significantly, allowing them to be in a very strong position. Even though there was no excess supply, the positive perceptions of builders were due to significant wealth accumulation. Builders had very little capital left for project development at that time.
Builders today face a totally different situation than they did one year ago; where builder's were in a strong position to sell their product as prices were rising in the stock markets and there was great volatility on Wall Street; today's builder is at an opposite end of the spectrum. Stock markets are experiencing high levels of volatility and uncertainty; therefore, builders that have made property purchases are attempting to resell those properties, and are facing delays in closing these transactions because of the volume of wealth that has measured lost market value leading to very low demand and confidence levels. Additionally, due to the current oversupply of units in the marketplace, there has been a decrease in activity for buyers to purchase housing units. Builders must be able to close these transactions relatively quickly, as builders have funded the construction of their existing projects and have committed to providing financing options for buyers to purchase the projects. Consequently, builders are going to lose buyers' interest and opportunities because of these favourable purchase and financing options that were created in conjunction with other purchases, will require buyers take some sort of action that would cause them to commit.
The initiation of the Iran and Israel war will further increase uncertainty in the markets. There is a consensus position that oil prices will rise over the short and medium term due to this war and consequently keep Indian stock markets volatile.
The stock markets have a fundamental impact on the Mumbai real estate market due to the significant amount of retail investor participation in the stock markets. The average home buyer's psychology is very simple: An average home buyer has a stock market portfolio worth Rs. 1 crore. He has his dream house in mind for that money. As the stock market has declined, his stock market portfolio is now at Rs. 80 lakh. His instinct is to wait for his stock portfolio to rise again before he buys a home. He will delay his purchase rather than compromise on his dream home. He also is incentivized to purchase a home only if he can buy a home at a price that he would believe is worth making a transaction. Builders will most likely have to lower prices if they wish to sell homes in the current environment of declining stock prices since buyers will be delaying their home purchases.
There is potential for opportunity, at least in some measure, in the context of the current Iran-Israel conflict. With many Indians currently investing in property in Dubai, the actualisation and reassertion of this demand may emerge in India throughout the course of this conflict. While some property in India may be hard to justify (due to its lack of luxury when compared with Dubai), a limited number of builders in certain markets may provide enticements to buyers who they will find difficult to pass up.
While developments associated with the ongoing conflict will most likely proceed at a faster pace as a direct consequence of the Iran-Israel conflict, it is clear that the overwhelming majority of potential buyers will perceive a threat, and only a very small number will perceive willingness. Hence, the war appears to present potential buyers the opportunity to explore options, explore the prevailing conditions of the market (i.e. monitor market speculation, undertake extensive negotiations during this uncertain period of time, and potentially purchase the property of choice).
Frequent Asked Question (FAQ):
1. Can the Israel–Iran conflict affect Mumbai’s real estate market?
A: Yes, the Israel–Iran conflict may create economic uncertainty that can influence buyer sentiment in the Mumbai real estate market.
2. How can the Israel–Iran war impact oil prices in India?
A: The Israel–Iran conflict may push global oil prices higher, increasing transportation and construction costs.
3. Can the Israel–Iran conflict affect the Indian stock market?
A: Yes, the Israel–Iran conflict can cause stock market volatility, which may influence property investment decisions.
4. Will the Israel–Iran war reduce property demand in Mumbai?
A: The Israel–Iran conflict may temporarily slow demand as buyers become cautious during uncertain global conditions.
5. Why do global conflicts like the Israel–Iran war impact real estate?
A: Conflicts like the Israel–Iran war can affect oil prices, inflation, and investor confidence, which may delay home buying decisions.