Indian Real Estate Market: Bubble or a Bit Trouble?

A fear of bubble comes in your brain of everyone who is looking to buy or invest in real estate these day. But without looking at facts one should not come up with any conclusion that speculates real estate bubble in India. real estate

Indian real estate industry is growing with a CAGR of more than 30% on your back of robust monetary performance of the country. After a little downturn in 2008-09, it has revived speedily and shown tremendous expansion. The market value of under construction project has grown from $70 bn at end-2006 to $102 bn by end-June 2010, which is equal to 8. 2 per nickle of India’s nominal GROSS DOMESTIC PRODUCT for 2009. In addition to the Federal. initiatives- liberalization of international direct investment norms in real estate in 2006, introduction of the SEZ Act, and allowing private equity funds into real estate, key factors written for this tremendous development were ‘lower price’ which has attracted buyers and investors not only from India but NRIs & Foreign funds also have stationed money in to Native american market. In addition to that, aggressively launching of new projects by building contractors had further improved this positive sentiment which exposed the way for fast growth in market previous year. 

Now question is whether any Bubble is forming in Indian market? Let’s look at the recent housing bubble in USA, Europe and middle-east. Beside monetary factors, key contributing factors in those bubbles were rapid go up in price beyond value, home ownership mania, perception that real estate excellent investment and feel good factor among which quick price hike is a key reason behind any real estate bubble.

Comparing it with Indian scenario, all those factors will work in major cities of India specifically Tier-I cities. Rates has skyrocketed and surpassed earlier pick of the year of 2007 in the cities like Delhi, Mumbai, Bangaluru, Chennai, Kolkata, Hyderabad, Gurgoan, Chandigarh & Pune. Even in some cities like Mumbai, Delhi, Gurgoan and Noida prices have gone by 25-30% higher than the pick of the market in 2007. However during monetary downturn in 2008-09, prices fell by 20-25% in these cities. Additional factor is home title mania and belief that real estate is good investment. Need based potential buyers and investors were fascinated by affordable prices in the end of 2009 and started pouring money in market. Tier-I towns Mumbai, Delhi-NCR, Bangaluru, Chennai, Pune, Hyderabad, Kolkata has shown maximum investment in real estate projects. Builders have taken the good thing about this improved sentiment and started launching new jobs. This has further increased confidence among those purchasers and investors who acquired missed possibility to buy or invest earlier which has further increased price unrealistically fast. And at previous feel good factor which is also working since last few months. The important thing factor of any bubble market, whether we are discussing the stock market or the housing market is known as ‘feel good factor’, where everyone feels good. The past one season the Indian market has risen drastically of course, if you bought any property, you more than likely made money. This kind of positive return for so many investors fueled industry higher as more people saw this and made a decision to invest in real property before they ‘missed out’. This feel good factor is at the cardiovascular system of any bubble and it has happened numerous times in the previous including through the stock market crash of 2008, the Japanese real estate bubble of the 1980’s, and even Irish property market in 2000. The feel good factor had completely absorbed the property market until recently and this can be a key contributing factor for bubble in Indian property market. Even after flow of negative news on real estate market correction and bubble, people are still highly positive on real estate growth in India.

Leave a Reply

Your email address will not be published. Required fields are marked *