Indian property bubble

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A major office complex in Gurgaon

The Indian property bubble refers to the concern expressed by some Indian economists[citation needed] that housing markets in some major Indian cities may be property bubbles which may burst.

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Potential causes[edit]

The Indian property market is purported to be in bubble territory since March 2005.[according to whom?].฿ ₵

Debate[edit]

Arguments against the bubble[edit]

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[according to whom?]. When looked at in that way Indian real estate is still cheap[according to whom?]. 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[according to whom?].

By its very definition, a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend,[clarification needed] 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[according to whom?]. 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[according to whom?](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).[citation needed]

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.

Arguments for the bubble[edit]

Indian real estate including builders, brokers etc. continue to sell the dreams to the public and many of them are defaulting.[citation needed]

Possible timing of adverse market events[edit]

Abnormal market statistics in the year 2011[edit]

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[1] India as reported on Navyroof.com.[2]

As of April 7, 2011, Navyroof.com.[3] 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. Another article dated June 24, 2013, suggests that slow down has already started in some areas.[4]

Some Delhi commentators, such as Prerna Agarwal,[5] 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.there is no possibility of salary increases in the short term[citation needed]and middle class will endup in paying their 20 years of earnings to own a home which is very high comparing to their western counterparts.The lower middle class who are not able to afford housing will tend to look for rented houses which put pressure on rental which also pushup the inflation further .The money generated as part of selling should be controlled by the govt and thereby get the taxes.

Abnormal market statistics in the year 2012[edit]

Real estate research firm PropEquity said new home sales in Mumbai and NCR dropped over 50 per cent in Q1 of this calendar year.[6]

Housing Slump showing up in the year 2013[edit]

The real estate market in cities across India show signs of crumbling [7] [8] as the Indian economy slows. The rupee has dropped nearly 20 percent against the dollar since early May 2013, scaring away foreign investors.Unsold inventory pile up while sales are down due to very high prices.

Data from property research firm Liasas Foras [9] shows Mumbai saw the maximum inventory of unsold homes at 155.27 million square feet or 48 months of unsold inventory during the first quarter of FY14. For NCR, the inventory has more than doubled to 31 months in the first quarter of FY14, while for Mumbai it has risen from 17 months to 40 months.Inventory denotes the number of months required to clear the stock at the existing absorption rate. An ideal scenario implies inventory should be in the range of eight to 10 months. But Mumbai would take four years to sell these homes despite a slew of discount schemes, new launches and back-room negotiations[10]

The National Housing Bank’s Residex tracks movement in prices of residential properties on a quarterly basis. According to the index,[11] during the period between April and June 2013 not only the tier I cities, but also the tier II cities witnessed a fall in prices.[12]

Builders face cash crunch after RBI put brakes on the 20:80 "ponzi" scheme.[13][14] In spite of defaulting on loan repayments, sellers are refusing to cut prices, for fear of starting a market rout.

See also[edit]

References[edit]