Indian property bubble
From Wikipedia, the free encyclopedia
Jump to: navigation, search
This article does not cite any references or sources.
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (August 2007)
This article is written like a personal reflection or essay and may require cleanup.
Please help improve it by rewriting it in an encyclopedic style. (September 2008)

The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the massive increase in real estate property prices across India. Low interest rates triggered huge interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate. The market has been growing at a dizzying rate of 100%+,and further[citation needed]

Real estate in Indian metropolises such as Mumbai, Delhi and Chennai has sky rocketed to levels comparable with international cities like London.

One remarkable point is the real-estate boom in Chennai and its suburbs, leading to high prices in decent housing and then finally prices dropped. For example, an apartment of 1500 square foot in a Chennai suburb will cost around USD 200,000, whereas in Europe similar size costs about USD 450,000. In a class A suburb of New York you can buy a large house for around same amount (450K). Per capita ratio is around 50:1 ($50,000 to $1100); this suggests the presence of a bubble.


However, speculations aside housing prices depend a lot on various factors such as the age of the property, facilities, surrounding area etc. Hence, the property bubble will burst for the places bought over priced with no stronghold value to it.

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. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to European levels within the next 5 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, 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. 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.

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

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.

As of May 1st 2008, the Indian housing market has already started declining. Prices have started to drop to some extent in few major cities.




...

Indian property bubble
From Wikipedia, the free encyclopedia
Jump to: navigation, search
This article does not cite any references or sources.
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (August 2007)
This article is written like a personal reflection or essay and may require cleanup.
Please help improve it by rewriting it in an encyclopedic style. (September 2008)

The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the massive increase in real estate property prices across India. Low interest rates triggered huge interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate. The market has been growing at a dizzying rate of 100%+,and further[citation needed]

Real estate in Indian metropolises such as Mumbai, Delhi and Chennai has sky rocketed to levels comparable with international cities like London.

One remarkable point is the real-estate boom in Chennai and its suburbs, leading to high prices in decent housing and then finally prices dropped. For example, an apartment of 1500 square foot in a Chennai suburb will cost around USD 200,000, whereas in Europe similar size costs about USD 450,000. In a class A suburb of New York you can buy a large house for around same amount (450K). Per capita ratio is around 50:1 ($50,000 to $1100); this suggests the presence of a bubble.


However, speculations aside housing prices depend a lot on various factors such as the age of the property, facilities, surrounding area etc. Hence, the property bubble will burst for the places bought over priced with no stronghold value to it.

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. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to European levels within the next 5 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, 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. 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.

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

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.

As of May 1st 2008, the Indian housing market has already started declining. Prices have started to drop to some extent in few major cities.




...

Indian property bubble
From Wikipedia, the free encyclopedia
Jump to: navigation, search
This article does not cite any references or sources.
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (August 2007)
This article is written like a personal reflection or essay and may require cleanup.
Please help improve it by rewriting it in an encyclopedic style. (September 2008)

The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the massive increase in real estate property prices across India. Low interest rates triggered huge interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate. The market has been growing at a dizzying rate of 100%+,and further[citation needed]

Real estate in Indian metropolises such as Mumbai, Delhi and Chennai has sky rocketed to levels comparable with international cities like London.

One remarkable point is the real-estate boom in Chennai and its suburbs, leading to high prices in decent housing and then finally prices dropped. For example, an apartment of 1500 square foot in a Chennai suburb will cost around USD 200,000, whereas in Europe similar size costs about USD 450,000. In a class A suburb of New York you can buy a large house for around same amount (450K). Per capita ratio is around 50:1 ($50,000 to $1100); this suggests the presence of a bubble.


However, speculations aside housing prices depend a lot on various factors such as the age of the property, facilities, surrounding area etc. Hence, the property bubble will burst for the places bought over priced with no stronghold value to it.

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. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to European levels within the next 5 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, 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. 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.

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

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.

As of May 1st 2008, the Indian housing market has already started declining. Prices have started to drop to some extent in few major cities.




...

Indian property bubble
From Wikipedia, the free encyclopedia
Jump to: navigation, search
This article does not cite any references or sources.
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (August 2007)
This article is written like a personal reflection or essay and may require cleanup.
Please help improve it by rewriting it in an encyclopedic style. (September 2008)

The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the massive increase in real estate property prices across India. Low interest rates triggered huge interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate. The market has been growing at a dizzying rate of 100%+,and further[citation needed]

Real estate in Indian metropolises such as Mumbai, Delhi and Chennai has sky rocketed to levels comparable with international cities like London.

One remarkable point is the real-estate boom in Chennai and its suburbs, leading to high prices in decent housing and then finally prices dropped. For example, an apartment of 1500 square foot in a Chennai suburb will cost around USD 200,000, whereas in Europe similar size costs about USD 450,000. In a class A suburb of New York you can buy a large house for around same amount (450K). Per capita ratio is around 50:1 ($50,000 to $1100); this suggests the presence of a bubble.


However, speculations aside housing prices depend a lot on various factors such as the age of the property, facilities, surrounding area etc. Hence, the property bubble will burst for the places bought over priced with no stronghold value to it.

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. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to European levels within the next 5 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, 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. 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.

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

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.

As of May 1st 2008, the Indian housing market has already started declining. Prices have started to drop to some extent in few major cities.




...

There are two common ways of presenting per capita income data. One way is to adjust for the cost of living in each country. This is usually called the PPP method which stands for Purchasing Power Parity. Most of the per capita income figures thrown around are PPP figures whether or not that is stated. The second method is the Atlas method. These figures are adjusted for currency values and inflation according to various schemes.



Table 3: National Average Per Capita Income using Atlas method

Ranking Country Per Capita Income in US$
1 Bermuda N/A
2 Luxembourg 43,940
3 Norway 43,350
4 Switzerland 39,880
5 United States 37,610
6 Liechtenstein N/A
7 Japan 34,510
8 Denmark 33,750
9 Channel Islands N/A
10 Iceland 30,810
11 Sweden 28,840
12 United Kingdom 28,350
13 Finland 27,020
14 Ireland 26,960
15 San Marino N/A
16 Austria 26,720
17 Cayman Islands N/A
18 Netherlands 26,310
19 Belgium 25,820
20 Monaco N/A
21 Hong Kong 25,430
22 Germany 25,250
23 France 24,770
24 Canada 23,930
27 Australia 21,650
28 Italy 21,560
29 Singapore 21,230
35 Spain 16,990
37 Kuwait 16,340
38 Israel 16,020
40 New Zealand 15,870
41 Bahamas 14,920
43 Macao 14,600
45 Greece 13,720
47 Cyprus 12,320
49 Portugal 12,130
50 SKorea 12,030
51 Slovenia 11,830
52 Puerto Rico 10,950
53 Bahrain 10,840
54 Malta 9,260
55 Barbados 9,270
56 Antigua and Barbuda 9,160
57 Saudi Arabia 8,530
59 Oman 7,830
61 Palau 7,500
62 Seychelles 7,480
63 Trinidad and Tobago 7,260
65 St. Kitts and Nevis 6,880
66 Czech Republic 6,740
67 Hungary 6,330
68 Mexico 6,230
70 Croatia 5,350
71 Poland 5,270
72 Estonia 4,960
73 Slovak Republic 4,920
74 Lithuania 4,490
75 Chile 4,390
76 Costa Rica 4,280
77 Panama 4,250
78 Mauritius 4,090
79 Latvia 4,070
80 St. Lucia 4,050
81 Lebanon 4,040
82 Uruguay 3,820
83 Grenada 3,790
84 Malaysia 3,780
85 Argentina 3,650
86 Gabon 3,580
87 Venezuela, RB 3,490
88 Botswana 3,430
89 Dominica 3,360
90 Belize 3,190
90 St. Vincent and the Grenadines 3,300
92 Turkey 2,790
93 South Africa 2,780
94 Jamaica 2,760
95 Brazil 2,710
95 Marshall Islands 2,710
97 Russian Federation 2,610
99 Fiji 2,360
100 Romania 2,310
101 Maldives 2,300
102 Tunisia 2,240
103 El Salvador 2,200
104 Thailand 2,190
105 Peru 2,150
106 Bulgaria 2,130
107 Micronesia, Fed. Sts. 2,090
108 Dominican Republic 2,070
109 Suriname 1,940
110 Iran, Islamic Rep. 2,000
111 Macedonia, FYR 1,980
112 Guatemala 1,910
112 Serbia and Montenegro 1,910
114 Algeria 1,890
115 Namibia 1,870
116 Jordan 1,850
117 Colombia 1,810
118 Ecuador 1,790
119 Kazakhstan 1,780
120 Albania 1,740
121 Samoa 1,600
122 Belarus 1,590
123 Bosnia and Herzegovina 1,540
124 Cape Verde 1,490
124 Tonga 1,490
126 Egypt, Arab Rep. 1,390
127 Swaziland 1,350
128 Morocco 1,320
129 Vanuatu 1,180
130 Syrian Arab Republic 1,160
131 Turkmenistan 1,120
132 West Bank and Gaza 1,110
133 China 1,100
133 Paraguay 1,100
135 Philippines 1,080
137 Honduras 970
137 Ukraine 970
139 Armenia 950
140 Sri Lanka 930
141 Djibouti 910
142 Guyana 900
143 Bolivia 890
144 Kiribati 880
145 Georgia 830
146 Azerbaijan 810
146 Indonesia 810
148 Equatorial Guinea 930
149 Angola 740
150 Nicaragua 730
152 Bhutan 660
152 Côte d`Ivoire 660
154 Cameroon 640
154 Congo, Rep. 640
156 Solomon Islands 600
157 Lesotho 590
157 Moldova 590
159 Senegal 550
160 India 530 ...

The first warning signs of the bursting housing bubble
First, remember that things get overheated when the general public begins to spend money on investment vehicles with the idea of quickly doubling their money. When enough people get into speculation, it is a sure sign of a bubble. When people aren`t buying a house for a place to live or as a long-term investment vehicle to rent out, you know the market is overheated. When you hear a lot of people talking about "making money on their house", then you know there`s a big bubble. So, that`s one interesting sign. It`s not very scientific, but there are far more scientific signs to be seen.
Normally, when you buy a house as a landlord, the rent that the renter pays you covers your mortgage costs, plus a little bit more. That`s what happens in a normal, healthy economy. Let`s say you go out and buy a home valued at $200,000 and you rent it out for $1,500 a month. That $1,500 a month should cover your mortgage payment, plus a little bit more for maintenance. This is what happens in a normal market. But in a bubble economy, or a bubble housing market, there are so many people buying houses for speculative purposes that this is an oversupply of houses available for rent. Therefore, the demand from renters stays the same, but the supply of houses available for renting expands. This glut of houses for rent becomes unusually large because all these investors have bought houses and condos with the expectation of making money on the speculation. It`s not just houses, either; it could be condos or apartments as well. I`m just using "houses" in a generic sense.

How do you know when there is a glut of houses for rent on the market? You know because rent prices begin to fall relative to the price of buying a place to live. It`s standard supply and demand economics. Prices begin to fall because there are too many houses available for rent and not enough renters. No landlord wants their house to go un-rented for five years, so they start lowering the rental price to get renters in. So, there`s an artificial suppression, a lowering of the monthly rental prices on houses available for rent. This creates a gap between how much you get in monthly rent for a house (as an owner) and how much you have to pay the bank for the mortgage. Let me give you an example...

Let`s say you bought a $200,000 house, a second home, because you intend to double your money as property prices go up. You`re hoping to spend $200,000 today, pay the bank for a few years, and then sell that house for $400,000. This is what people are thinking. Well, unbeknownst to you, everybody else is doing the same thing, and all of a sudden, there are a whole lot of houses available for renters to rent. What does this do? It suppresses the monthly rent fee. The market is too competitive for you to get $1,500 for monthly rent. You can get only $1,200 or maybe you can only get $1,000.

Now you`re only getting two-thirds of what you used to get, and what you`re getting may not even cover your mortgage. When it crosses that line, it is a sure sign of a housing bubble. When the monthly fee you charge to rent your house drops below the monthly mortgage payment on that house, that`s the sign of a housing bubble. That`s the sign of a supply-side glut of housing, and that`s what`s happening today. In other words, you can go out and buy a home and you can rent it out, but you can`t get enough from the rent to cover the mortgage payment. It`s because there`s a housing bubble.

Please check Property prices (onthly EMI) in your area and compare with Live & Licence Monthly rent and see your self that how big is the real esate bubble in India
...

Market will stable around BSE 2500 its this is right time for long terms investor to Enter frshly its bottom out around 10th of June 2009 ...

Dear Mr Bhatt - So long as you are not after RIL I will whole heartedly agree with you regarding the real estate bubble. Unfortunately SEBI had to put in DLF in the NIFTY that is my problem with mutual funds. Also the tendency of banks have been to lend amounts minus the land value and stamp duties in case of individual houses. The banks are further protected under the securitisation act unlike in the USA where the banks can only acquire the property against which they have lent. They have also not really touched commercial properties as per RBI guidelines. So I do not expect a subprime cirisis. Now the stock market has brought down real estate companies by 75% to 90%! I hope that in the real economy the rates come down by some 50% so that I can buy some commercial property instead of the heavy rents I am already paying! I am a user so I would not wait for the properties to go down to 1/3rd! So at least we are coming to some form of agreement between us! I hope you will have better things to say about the Indian stock markets, our real economy which includes our farmers, the rest of our markets and our Indian culture. Certainly I would not wish anyone to follow the footsteps of Americans blindfolded and analyse the blunders they have made. All civilizations of the world have always made big blunders in history to make them susceptible to be conquered. Americans did not learn from past history!...

Bhatt, I think it is sufficient if could have posted the message in one link. It is only time when the humpty dumpty of Indian realestate will have a great fall (from the present prices). World-wide, central banks are fighting the present slow-down, to avoid the more deadly deflation, as newsreports suggest. ...

Sir, But the EMI depend on the tenure of the loan... Say a person(call him A) has taken a loan of 200000 rupees for 5 years and his EMI is 5000 and the rent he is getting is 3000 . Say an other person(Call him B) takes the same amount of loan of 200000 rupees for a 20 year period and his EMI works out to around 2000 and the rent he gets is 3000 .... In the above example though both A & B are getting 3000 rupees as rent.....the same 3000 for A is substantially less than the monthly mortgage payment ....Whereas for B the 3000 rupee rent is substantially more than HIS monthly mortgage payment. So how do we calculate and judge when the mortgage payments vary from person to person.. Or did i miss a point in your message which has a answer? ...Singh... ...

Land prices will not go down much (depending upon where the land is). They could go down by 15 to 20 percent. And in some areas only 5 to 10 percent. Of course ANYTHING WHICH WAS RIDICULOUSLY PRICED (whether plots of land being sold or apartments) will go down a lot. Apartment prices have to go down at least 25 to 30 percent from current levels or around 50 percent from peak levels....

I think ...

Dear Mr Bhatt - If India does not have buying power today it did not have for better part of the last six decades! The stock market is a very small arena in India and has come into the limelight moreso in the past few years due to FII investments. Take RIL the FII holding is still around 26 crores as compared with the Indian public which has 16 crores. So the Indian Stock Market is represented by over 50% other than promoters holding possibly in the entire NIFTY! The bubble you are talking about is controlled by the FIIs. I know a good number of Indian businessmen who know NOTHING about the stock market! Right now if I am correct with the above assumption then it is the FIIs who are the bigger losers. Of course there are many big time losers like me but there are many many more who never touched the stock market which in the average Indian family is taboo. Now why would I invest in someone else`s company instead of in my OWN business? So now the target of the experts and news media seems to be to create panic and buy cheaply from the FIIs. Today throughout the day RIL was in +ve terrirtory above 5%. In fact I had already predicted that there would be a crash by evening. All I did was sell 20 shares in the morning and bought back 20 shares in the evening since I do not have the feeling fo trading too much in the negative zone! So either the stock was being propped up in stages by the promoters as noticed in the last 3 sessions or only the FIIs were playing a game by creating triggers in the morning and cashing out in the evening. If the former is true then RIL is in the right direction quietly unnoticed and so there is accumulation while keeping in mind that the last the promoters did was buy at Rs 1400 per share! If some more FIIs are exitting as a result then it is they who are losing as of now and we cannot stabilise until we reach a stage where longterm investors will remain. The rate FIIs have been exitting is at an average 40 lakh shares per month in RIL. At this rate in another six months another 2 crore shares whould have changed hands. Now it is upto FIIs and not you and me anymore at what they rate they wish to quit. According to this MMB there are no buyers even at Rs 500! So whom will they sell to! I sincerely hope that none of our Indians are exitting at these levels so while I am saying that there is a possibility of RIL going down due to the FII mechanism breaking down I am still reiterating to all Indian investors that fundamentally RIL is a very good buy and an SIP should benefit immediately after our elections provided there are no surprises over there. So I am not selling out, will buy some small quantities upto March 2009 and then take a call thereafter. What is lost is lost but I have a lot of conviction that holding this stock seems to be the right thing to do! Also assuming that the trading pattern in last three days might suggest that NIFTY at 2000 is some 600 points away so 30% of 1130 is around 800 however if there is some +ve bias towards RIL from the whole lot RIL should now find its bottom a little higher at around 1000 but I will keep in my mind that it could be 700! So Mr Bhatt it is not an Indian game anymore it is an FII game so I hope you will throw some mud on the responsible -or did mean irresponsible- guys in the USA. They are 100% responsible for what goes in their part of the country and what they did to us! Still I appeal to those brave young Indians - jeenone chudi nahin pahen rakha - to come to the aid of the nation and takeover the infrastructure from the FII hands and make use of them....

So Mr Bhatt so what are you doing to eradicate pverty? Have you done a little bit in your lifespan? Now that you are in the USA you might do something if you did nothing knowing all this while. If you do not wish to do anything be clear what are you trying to tell us and give us the solutions also. That indeed will be a great help! Thanks in anticipation....