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Residential market in for a correction on fears of bubble burst
By Vivek Seal Sep 26 2010
Tags: Residential market, Real Estate


The country’s residential market is looking at some correction in the coming months as fears of a 2008-like real estate bubble burst is on the cards, say analysts.

Delhi and Mumbai have already breach ed their 2008 highs by 18 per cent and 30 per cent, respectively.

However, Chennai, Gurgaon and Noida are about 10 per cent to 30 per cent lower than their 2008 hig hs, according to Kotak research.

Residential prices have gone up by two per cent to five per cent in this quarter alone, according to real es tate consultants Jones Lang La salle India.

“In the initial part of the revival phase, market sentiments improved on the heels of various factors, including improved health of the stock market, vastly rationalised pro perty rates and increased job security. However, the uptick in sentiments has once again given way to caution among home buyers, who are discouraged by the rise in prices and uncertainty on the home loan front. Though there is considerable dem and, buyers in many cities are waiting for a possible correction,” chairman and country head of Jones Lang Lasalle (JLLM) India Anuj Puri said.

In the past three quarters, residential property prices have grown by over 10 per cent in the national capital region (NCR), by over 12 per cent in Kolkata, over 13 per cent in Bangalore, over 10 per cent in Che nnai, over 13 per cent in Pune and over 20 per cent in Mumbai.

After several quarters of muted growth, the Indian residential market is once again riding on a growth phase with both increased volumes and appreciating prices across India.

“Property prices in select metro markets such as Mumbai and Delhi-NCR have already risen above their pre-recession peaks generating concerns. To counter another asset bubble from forming, the RBI started its rate tightening cycle in March 2010,” managing director at RICS India, a real estate standard setting and self regulatory professional body, Sachin Sandhir said.

Analysts covering the residential market believe the market is experiencing its second growth phase. The first phase of volume growth with stable or marginally declining prices was witnessed in the fourth quarter of the previous financial year and the first quarter of FY11.

The second phase of high volum es along with price increase began from the end of the first quarter. Ho wever, with prices reaching their lifetime highs and even breaching it in several regions, experts expect the volumes to take a hit as customers delay their buying decisions in the hope of a price correction.

Despite improving demand conditions compared with that in 2008, commercial vacancies are rising in the short term due to massive infusion of office space. Mumbai and NCR-Delhi are leading this property cycle. The ma rket in Bang alore, Ch e nnai and Pune is expected to stabilise sooner than that in Hyderabad and Kolkata, according to JLLM.