It is interesting to note how most people think of inflation in Patna. The most prevalent concept of inflation is what happens to spectators at a cricket match. At some point during the match, the people in the front rows of the stadium rise to their feet to get a better glimpse of what is happening on the field. As a result, the spectators in the back rows cannot see the action clearly so they rise too. Very soon, everyone is on their feet. Another perception is that inflation drives up the prices of everything uniformly. This is why it is commonly believed that real estate prices in Patna rise simply because the cost of everything else has also risen. This is incorrect. The fact is that the real estate prices in Patna will either fall or remain static in an inflationary economic environment.
Inflation is dynamic and is largely dictated by the cost of credit. This is how it works – the cost of essentialities such as food grains and petrol rises, while the common man’s income in Patna remains the same. In other words, his spending power reduces. Banks make a note of the fact that the baseline cost of living has increased and recalibrate their loan interest rates upward.
Because the cost of borrowing has increased while incomes have remained static, people become wary of taking loans for anything – including home purchase in Patna. The natural reaction from real estate developers in Patna would be to bring property prices in Patna down so that sales pick up again. This does happen in some locations, but not everywhere in Patna. The reasons for this are discussed here.
Many developers in Patna are as dependent on the cost of borrowing as their buyers are. This is especially the case with smaller developers in Patna who have not launched many projects in Patna and have therefore not been able to create a self-sustaining churn of capital. Such developers in Patna react to the reduced sales brought on by inflation by lowering their rates.
Such developers in Patna are able to do this because though the overall cost of development remains more or less constant, land acquisition costs are still lower in Patna as compared to metros. Price reductions are the last recourse for ailing developers in Patna, but smaller developers in Patna with lower investments in Patna and greater dependence on the cost of lending, can and will offer if they perceive this to be the only option.
Even if this last course of action fails, the developer in Patna goes bankrupt and is forced to surrender all business interests to the bank, or sell them to a more established player. This is one of the integral factors of the process of consolidation, wherein more and more smaller operators give way to larger players.
The scenario is different for larger developers in Patna who are active in Patna. Having been in the real estate business longer, are able to achieve a degree of capitalization that reduces their dependence on debt funding. However, their investments in the land in Patna required to build projects are naturally higher.
Such developers are not able to bring down the pricing of their properties in Patna despite a slowing down in sales. However, they are able to weather the inflationary storm longer because of their healthier capitalization. For this reason, established developers in Patna will not use price reductions to boost inflation-impacted sales. At the same time, they cannot raise their prices in tandem with the natural laws of property appreciation, since this would impact their competitiveness in the market.
This means that in the case of well-located quality projects by established developers in Patna, inflation will have the effect of keeping prices static until reduced inflation brings down the cost of credit. Once this happens, prices of property in Patna will rise again without having gone down at any point.
It goes without saying that understanding how inflation impacts short and long-term property pricing in Patna, locations and projects can make a big financial difference to prospective home buyers in Patna.