Housing price bubble not likely in India
New Delhi: Even though real estate prices have increased rapidly in the leading cities, Reserve Bank of India (RBI) governor D Subbarao opines that there is no housing price bubble building up in India. After capturing prices in nine cities, RBI has recorded in its macro-economic and monetary development report released recently that there are no asset price bubbles.
Many developers have alleged that that the main reason for the increase in property prices was higher land and input costs resulting from delays in approvals. Delay in projects increase the holding costs of projects, among others. They said that the prices have not gone up owing to speculative buying, as the realty market is mostly driven by end-users, they insist. Further, according to developers, supply would continue to be less than demand because of which prices would remain firm.
At present, real estate demand is strong and prices are stable in the residential segment and are unlikely to witness a steep correction. In this end-user driven market, the prices would be hit only if demand slowed down considerably.
Even bankers have expressed similar opinion in this regard, saying that the real estate demand is primarily driven by the middle-income group and there isn’t much of an asset price bubble.
While in case of commercial real estate sector, as there is abundant supply of properties, the issue of any asset price bubble building up would hardly come up. Prior to 2007, the commercial construction activities were on top while it slowed down later on following the financial crisis in 2008.
RBI has to come up with better measures in order to encourage the housing sector. Rising land prices, growing taxes and input costs, etc have resulted in hike in real estate prices.
The RBI’s report states that the annual growth in RBI’s quarterly house price index at the all-India level has hovered around 20 percent for the past eight quarters, with all cities, except Kanpur, registering positive growth in Q3 of 2012-13. Transaction volumes also picked up, registering an annual growth of over 14 percent in Q3.
Investors, after the global meltdown, are cautious that in case recession occurs, their money may turn to be a dead investment.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has said that the real estate sector has attracted Rs 42,000 crore new investments during 2012-2013, which is nearly 55 percent less compared to the previous fiscal (Rs 92,600 crore). Most states have failed to attract new investments, which is a hint to declining progress of real estate sector in India.
In the past one decade, the property prices in some pockets of Delhi-NCR and other top cities have grown exponentially. Properties in Gurgaon have witnessed doubling of prices for many times in the last few years. Properties are being sold at Rs 10,000 per sq ft mainly because of illegal price rises, which are created due to artificial demand and may not last long. The value of money may not exist as there are too many speculations in the market. Hence, it is advisable that it is not safe for investors to ride with the tide as it is not likely that the property prices continue to grow with the same speed.
For instance, real estate biggies such as Lodha Group and Indiabulls Real Estate have launched their premium projects in Mumbai with around 10-15 percent lower price tags. To attract investments in a sluggish realty market, both the developers have quoted rates at around Rs 25,000 per square feet, against earlier prices of Rs 28,000-30,000 per square feet.
Related Real Estate News:
Approval delays lead to hike in property rates: Survey
Real estate in Jaipur witnesses increasing fraud risks
Gurgaon real estate is mainly investor-driven
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