Economic times acknowledges the housing bubble though it is still afraid to displease the builders. A simple reality check is all you need. Goto to the hundreds of housing complexes which have sprung up all over the city of mumbai and check the occupancy. The people living there are either the buyers who got in cheap or the apartments are rented out. Technically in Mumbai, every apartment if priced right will be picked up in seconds. If the price is not right, I think the bubble will grow bigger and the crash will be steeper. So a 30-40% drop is not too big considering pricess have jumped 3times in the past 3 years
ET article follows.
HIGH interest rates and rapid escalation that land prices witnessed this year may be one indicator of an impending real estate bubble of sorts. Softening of prices in select pockets such as Gurgaon, Noida & Ghaziabad in Delhi NCR and certain areas in Mumbai over the last 6-8 months has already been witnessed. But what does all this signify for the Indian real estate sector? Will the bubble burst or are these mere speculations? SundayET gets to the root of the matter.
There are several indicators that could suggest a bubble. Unreasonably inflated real estate prices across the board, higher vacancy rates in residential and commercial projects with unwarranted project delays by developers and a steady withdrawal of both domestic and international investors are some of the signs that imply a real estate bubble in the market. Experts suggest that a 10-15% correction in prices does not imply that the sector will slow down. The real estate sector is currently on a high due to high economic growth, shortage of residential spaces, growth in IT/ITes, retail etc. The focus though will now have to shift more towards Tier II and Tier III cities since the metros are getting saturated.
Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM) says that there are no indications that investor activity has overtaken genuine buyer activity. “The residential sector is led by end-users and it is they who dictate the state of the market. There is no evidence of a ‘bubble.’ Neither is there a significant correlation between the state of the stock market and that of the property market. There are instances of overheating but these are localized.”
Developers are quick to brush off the idea that any signs of a bubble may even exist. Dr B P Dhaka, COO(MP), Parsvnath Developers feels that it will be completely wrong to think that the current real estate boom is a bubble waiting to burst. “The growth in realty has evolved back-to-back with all round economic development witnessed by the economy over the last decade. The boom in real estate might have looked like a bubble about to burst, but the fact remains that the burst has been converted into further opportunities because of transformation of the real estate sector into an organized sector and its penetration into the Tier II and Tier III cities.”
Agrees Avneesh Sood, director, Eros Group, who feels that the 10-20% correction in property prices augurs well for the industry because there are various unorganised developers who create unrealistic
price mechanisms, hence making it unaffordable for genuine home buyers. “The picture is really not as bleak as it is made out to be. Demand is not exactly non-existent. There will be a decent growth at an average of 5% between 2008 to 2010. Developers for their part are still very optimistic, as buyers’ continue
to pick up property for end-use. Developers’ should now target the affordable quality housing segment for the middle class and offer decent value for money dwelling units.”
When a bubble develops in any market, it is essentially because prices for that particular commodity or asset have gone through the roof and beyond affordability levels. Hence, real estate bubbles are invariably followed by severe price decreases. So what exactly can be done to avoid the house price cash from finding its way into the Indian market?
Ganesh Raj, Partner & National Leader, Real Estate Practice, Ernst & Young, feels that the government has to play an active role to keep the situation in control. “Severe price decreases happen if there is a demand-supply mismatch. We currently face a shortage of about 24 million households. In order to control any severe fall, the government has to take certain measures. Steps like repealing of ULCRA are a positive move. Similarly, checking that speculators are not entering the market, appointing of regulator in order to check that real estate developers are not involving themselves in unfair practices, increasing the FSI especially for residential sectors would help in controlling the prices.”
Raj’s cautious approach is only natural as he remembers the last time when the burst in the mid 90s wrecked havoc in the property market in India. At that time the reason for the crash was mainly due to there being more investors than end users. “The real estate markets closely tracked the stock-market fall at that point of time. Housing prices that had zoomed during the bull run of 1993-94, started showing a downward slide in 1995. The burst in real estate market lasted far longer than the burst in the stock-market. Between 1995 and 2000, the property bubble that was built on speculations burst, and prices declined by almost 30–40 per cent across India. Artificial demand was created and there was no supply to meet that demand which led to a crash in prices. The bubble burst in 1996 as speculators were desperately liquidating their holdings,” he adds.
With land always being a scarce resource, property prices would invariably follow basic economics of demand-supply and pricing. Once asset prices start escalating, the initial interpretation always suggests a bubble. However, an in-depth analysis of price appreciation in real estate and understanding the reasons could help in comprehending these fears. Moreover, the available landbank and technology together with innovations in the realty sector is likely to avoid a real estate bubble burst and sustain the current scenario.
REALTY CHECK
Unreasonably inflated prices, higher vacancy rates, steady withdrawal of domestic and foreign investors are signs implying a real estate bubble
Govt measures such as appointing of regulators to check against unfair practices and increasing the FSI for residential sectors can help in controlling prices
Landbank and technology with innovations in the realty sector are likely to avoid a bubble burst and sustain the current scenario.
ET article follows.
HIGH interest rates and rapid escalation that land prices witnessed this year may be one indicator of an impending real estate bubble of sorts. Softening of prices in select pockets such as Gurgaon, Noida & Ghaziabad in Delhi NCR and certain areas in Mumbai over the last 6-8 months has already been witnessed. But what does all this signify for the Indian real estate sector? Will the bubble burst or are these mere speculations? SundayET gets to the root of the matter.
There are several indicators that could suggest a bubble. Unreasonably inflated real estate prices across the board, higher vacancy rates in residential and commercial projects with unwarranted project delays by developers and a steady withdrawal of both domestic and international investors are some of the signs that imply a real estate bubble in the market. Experts suggest that a 10-15% correction in prices does not imply that the sector will slow down. The real estate sector is currently on a high due to high economic growth, shortage of residential spaces, growth in IT/ITes, retail etc. The focus though will now have to shift more towards Tier II and Tier III cities since the metros are getting saturated.
Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM) says that there are no indications that investor activity has overtaken genuine buyer activity. “The residential sector is led by end-users and it is they who dictate the state of the market. There is no evidence of a ‘bubble.’ Neither is there a significant correlation between the state of the stock market and that of the property market. There are instances of overheating but these are localized.”
Developers are quick to brush off the idea that any signs of a bubble may even exist. Dr B P Dhaka, COO(MP), Parsvnath Developers feels that it will be completely wrong to think that the current real estate boom is a bubble waiting to burst. “The growth in realty has evolved back-to-back with all round economic development witnessed by the economy over the last decade. The boom in real estate might have looked like a bubble about to burst, but the fact remains that the burst has been converted into further opportunities because of transformation of the real estate sector into an organized sector and its penetration into the Tier II and Tier III cities.”
Agrees Avneesh Sood, director, Eros Group, who feels that the 10-20% correction in property prices augurs well for the industry because there are various unorganised developers who create unrealistic
price mechanisms, hence making it unaffordable for genuine home buyers. “The picture is really not as bleak as it is made out to be. Demand is not exactly non-existent. There will be a decent growth at an average of 5% between 2008 to 2010. Developers for their part are still very optimistic, as buyers’ continue
to pick up property for end-use. Developers’ should now target the affordable quality housing segment for the middle class and offer decent value for money dwelling units.”
When a bubble develops in any market, it is essentially because prices for that particular commodity or asset have gone through the roof and beyond affordability levels. Hence, real estate bubbles are invariably followed by severe price decreases. So what exactly can be done to avoid the house price cash from finding its way into the Indian market?
Ganesh Raj, Partner & National Leader, Real Estate Practice, Ernst & Young, feels that the government has to play an active role to keep the situation in control. “Severe price decreases happen if there is a demand-supply mismatch. We currently face a shortage of about 24 million households. In order to control any severe fall, the government has to take certain measures. Steps like repealing of ULCRA are a positive move. Similarly, checking that speculators are not entering the market, appointing of regulator in order to check that real estate developers are not involving themselves in unfair practices, increasing the FSI especially for residential sectors would help in controlling the prices.”
Raj’s cautious approach is only natural as he remembers the last time when the burst in the mid 90s wrecked havoc in the property market in India. At that time the reason for the crash was mainly due to there being more investors than end users. “The real estate markets closely tracked the stock-market fall at that point of time. Housing prices that had zoomed during the bull run of 1993-94, started showing a downward slide in 1995. The burst in real estate market lasted far longer than the burst in the stock-market. Between 1995 and 2000, the property bubble that was built on speculations burst, and prices declined by almost 30–40 per cent across India. Artificial demand was created and there was no supply to meet that demand which led to a crash in prices. The bubble burst in 1996 as speculators were desperately liquidating their holdings,” he adds.
With land always being a scarce resource, property prices would invariably follow basic economics of demand-supply and pricing. Once asset prices start escalating, the initial interpretation always suggests a bubble. However, an in-depth analysis of price appreciation in real estate and understanding the reasons could help in comprehending these fears. Moreover, the available landbank and technology together with innovations in the realty sector is likely to avoid a real estate bubble burst and sustain the current scenario.
REALTY CHECK
Unreasonably inflated prices, higher vacancy rates, steady withdrawal of domestic and foreign investors are signs implying a real estate bubble
Govt measures such as appointing of regulators to check against unfair practices and increasing the FSI for residential sectors can help in controlling prices
Landbank and technology with innovations in the realty sector are likely to avoid a bubble burst and sustain the current scenario.
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