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.

Potential causes[edit]

The Indian property market is purported to be in bubble territory since 2008. Professor Venkatesh Panchapagesan, who heads the IIMB-Century Real Estate Research Initiative, discusses the impact of black money, upcoming elections.[1]

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 India as reported on[2]

As of April 7, 2011,[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] 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 [8] 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[9]

The National Housing Bank’s Residex tracks movement in prices of residential properties on a quarterly basis. According to the index,[10] 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.[11]

Builders face cash crunch after RBI put brakes on the 20:80 "ponzi" scheme.[12][13] In spite of defaulting on loan repayments, sellers are refusing to cut prices, for fear of starting a market rout.

See also[edit]