Indian property bubble

A major office complex in Gurgaon

Tidel Park is one of the many software parks in Chennai.

The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the increase in real estate property prices across India. Low interest rates triggered interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate.

Some have suggested that given India's population density is closer to that of Europe than that of America the real value of Indian Real Estate should be close to European levels rather than American levels. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to Western European levels within the next 10 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2–3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient. This price increase is mostly due to two reason – one primarily in most cases the developers create false claims of overbooking and increase the demand and price and the other reason most of time properties are bought sold within 6–12 months from one buyer to other. There is no system available to the public to track these sells or buys. In US there are lot of real estate website provide the details buy and sell details , what is fair value, when the house was built, how many houses are on sale,etc...

The other factor to consider is cost-to-facility ratio, in Mumbai a 2 bedroom apartment with living space of 1,200 square feet (110 m²) or 1,400 square feet (130 m²) of build up area will cost about 60 Lakhs to 1 Crore or even more, same for other major Indian cities Chennai, Bengaluru, Hyderabad, Pune , Gurgaon,etc.. . Where as in US, Australia, UK or France a 3 bedroom/2.5 bath townhouse which is at least 2,000 square feet (190 m²) around most of metros( other than Manhattan and Los Angeles ) will cost between 250,000 USD to 500,000USD which is between 1 Crore to 2 Crore Rs. This houses have parking garage, back yard and with basic Kitchen setup including cabinets, refrigirators, washer and dryer and for higher range may include a private swim pool, basement, front yard. In these western countries average salaries are almost 8 times the Indian salaries but cost of house(For a much better house) is only double. Also, compare what you get for your money in Europe or United states with the situation in Indian cities as evidenced by perusing the real estate advertisements. Phrases like "ample water supply" " well ventilated" " with backup generators for power supply" are littered in almost all of these ads. Bottom line is you get basic amenities that are taken for granted in the west for a premium price. Also the Interest rate paid by indians is almost double that of there developed country pears makes the EMI paid on par with developed countries in many cases.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, apart from periodic adjustments, in the last 10 years. Bear in mind that there are almost 400 million Indians waiting to hit the middle class group and they will exert additional pressure on the system. Affordability is the most important factor when it comes to housing prices and middle class housing is much levels of affordability in most of the major cities in India. People who compare India with developed European cities, forget the huge difference in affordability in both areas. Of course there is a huge demand for housing but they can only buy what they can afford(from common sense).

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

Lack of efficient signals to market participants means that there will be periods of mismatch between suppliers and buyers hence leading to cycles of booms and busts.

Update on Indian Property Bubble 2011

Mumbai’s residential property market is predicted to witness a glut in 2012–13 owing to steady new launches at a time when sales are extremely slow, according to Indian real estate consultancy Jones Lang LaSalle India as reported on Navyroof.com..

As of April 7th 2011, Navyroof.com. featured an article Mumbai residential property set for fall of up to 35% by Jones La LaSalle which says property in Delhi and Mumbai could fall by as much as 35%. The reasons for this is Indian property developers who bought land at high prices are now having to bring prices down considerably and of recent residential sales about 65% of flats in Delhi and 35% in Mumbai have gone to speculators according to Jones Lang La Salle.

Some Delhi commentators such as Prerna Agarwal. feel the Indian property market needs to be looked at in context of the overall economic situation in India and the local real estate pricing trends prevalent in a region. The Indian economy is booming with an annual GDP growth rate of 8.5- 9% creating a class of potential investors with significant disposable income. As housing remains a concern in major metro cities, sufficient demand generators for residential units are there for the next decade and expect prices to rise 10–15% in India in next five years.

Its been reported Indian property prices could fall 10–15% by Diwali .

See also

• India
• Bank of India
• Economy of India
• Real estate bubble
• Economic crisis of 2008
• The world housing bubble
  • Australian property bubble
  • British property bubble
  • Irish property bubble
  • Japanese asset price bubble
  • United States housing bubble
  • New Zealand property bubble
  • Romanian property bubble
  • Spanish property bubble

External links

• Core Economics animated Real Estate Rollercoaster Ride
• Real Estate Times India
• Real Estate News