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Real Estate Bubble - Has it inflated or bursted?

The Indian Real Estate sector is facing a downturn at the moment, after most analysts comparing the rise in property prices to the dotcom boom of 2000, the question now on everyone’s mind is what next lies ahead? With the coming IPO of Dehi based real estate king DLF, the sector is once again in the news.

But India’s real estate market is certainly not in good shape - business is drying, supply is increasing, increasing interest rates and prices have affected plans for middle class to take a property, developers are facing concern due to RBI and SEBI measures preventing them from raising and deploying funds in their projects. Moreover, supply is increasing, as is evident from the huge number of flats and malls being built, and the view echoed by everyone is that property prices are set to fall.


The Goverment has also been laid back by protest over the new SEZ being built (probably we should learn from China, where SEZ was the primary reason behind its economic development). The decision to impose Service Tax on commercial rentals is also a negative for the companies. With the Supreme Court passing order prohibiting construction of 3rd floor in a residential house, things are really looking bleak.

But in growing econcomic scenario of India, eemand for residential housing, township development, commercial/IT Parks and retail malls would exist. Property prices would now be driven by economic growth, existing shortages, demographics, urbanization, growth in nuclear families, easy availability of finance, and rising incomes. The direction of lending rates would also determine the direction of real estate development in the country.