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Indian real estate – boom or a bubble?


Indian real estate – boom or a bubble?

Last updated: January 13 2009
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  • Indian real estate – boom or a bubble?

    Indian real estate – boom or a bubble?

    Property prices in India are rising fast, and as the tech boom spreads across the country, and more Indians buy homes,with the growing economy at the rate faster than 8% a year, real estate is attracting more investors, even from overseas

    Though India is one of the major countries in Asia with an improving market there are concerns about an asset-price bubble raising questions as to whether the speculation of the past year and a half, which has driven land prices up by 30% to 100% and real estate stocks up as much as 2,000%, may be coming to an end.

    Its the boom or bubble question in Indian real estate that has been a cause of worry lately.
  • #2


    Re : Indian real estate – boom or a bubble?

    But the reality is that the cycle turns....

    Bigger the boom, the bigger the bust. One might say it does not happen in Real Estate. Well, it does. It happened in Mumbai in mid 90's and also in Japan - 1990 till now. It happens in all markets. So back to the question - how long to sit on the fence.


    • #3


      Re : Indian real estate – boom or a bubble?

      How has the housing bubble affected your plans to buy or sell a home?

      What i was interested in is to know only that how has the housing bubble affected your plans to buy or sell a home?


      • #4


        Re : Indian real estate – boom or a bubble?

        It is a boom!! no dout about that but has the boom helped those who really needed or whther it has open gates for scams?All these questions really need to be answered..


        • #5


          Re : Indian real estate – boom or a bubble?

          which cities are feeling the boom...

          are all part of india is in the boom of real estate or the few metros and IT hubs are booming...


          • #6


            Re : Indian real estate – boom or a bubble?

            It's no bubble, only boom all the way...

            It's no bubble, only boom all the way...

            India's real-estate market has never been so good! And if the 'boom or bubble' question still pops in your mind have alook at this news extract.

            A large number of foreign investors are aggressively entering the real estate investment space, with close to $7 billion to $8 billion of venture capital expected to flow into Indian real estate over the next 18 to 30 months.

            A T Kearney has studied real estate investment trends across 50 countries and their relationship with the GDP of their respective countries. There is a strong correlation that exists between the two, and based on this, A.T. Kearney developed a ‘global industry curve’ for real estate with best-fit line between real estate investments and the GDPs of respective countries.

            Historically, the Indian real estate market has been highly fragmented and unorganised. Real estate investments were very limited, representing only 2% of the total GDP in 1995.

            A.T. Kearney's analysis of the Indian real estate market using the 'global industry curve' indicates that this ratio for India can potentially go to 4.2% in 2010, at a compounded annual growth rate of 14.3%.

            The real estate sector is driven by strong and consistent economic fundamentals and growth. India's economy has been amongst the fastest growing global economies in the last 15 years with a compounded real growth rate of 6.4%.

            Source: Financial times


            • #7


              Re : Indian real estate – boom or a bubble?

              Real estate is booming

              India is undoubtedly zooming away into new heights of real estate boom which is further fuelled by an increase in the business activities. Be it the metropolitan cities like Delhi and Mumbai or cyber cities like Bangalore, Pune or Chennai, the realty boom can be seen in every direction.

              Large investment plans from foreign players like Goldman Sachs, Vancouver-based Royal Indian Raj International Corporation (RIRIC), JP Morgan Stanley, Merrill Lynch, Citigroup Property Investors and others only serve to strengthen this thought.

              With prices of property getting higher and higher, can Indian real estate developers see their dream taking shape? Or would it be like Think Big and Risk Big........


              • #8


                Re : Indian real estate – boom or a bubble?

                Indian real estate attracts foreign investors, but will the trend sustain...

                Largely fragmented Indian realty sector has been on the upswing and is turning out to be hot attraction for the foreign investors. However, these potential future investors seem to be little baffled about whether the gains are worth the effort necessary to acquire them.

                Over $8 billion of foreign investment is estimated to flow in the year 2006-2007, of which 26.5 percent will be in real estate, says study released by the Associated Chambers of Commerce and Industry of India.The study also says:
                the market will grow to $60 billion by 2010 from the current $16 billion, with foreign investment providing $25 billion to $28 billion.
                Such a boom will certainly trigger a change in the direction of economic policy in the country.

                Since, the realty sector in India continues to be so hard to navigate, property players doubt the possibilities to get involved here. Adding to woes of foreign investors is a compulsion to obtain necessary approval from the RBI prior to purchasing real estate in India. Along with being an entirely new construction, the location involved should fetch an area more than 50,000 square feet, or 4,650 square meters.

                Poor infrastructure of some Indian cities might serve as a bottleneck to further plans of realty developers, who have built on what experts call green field sites. However, this is not an end to the problems. Tax policies in India have forced most Indian owners to divide their property into smaller unit which are further entitled to numerous partners, each holding their individual share.

                Industry experts over the globe believe that India will become a very important part of the real estate business. But is very early days in India, and there are a lot of restrictions. Only time will say...


                • #9


                  Re : Indian real estate – boom or a bubble?

                  Is the real estate euphoria just a bubble waiting to burst?

                  Is the real estate euphoria just a bubble waiting to burst?
                  This is the million dollar question whose answer probably the current financial year will reveal.

                  Access to capital is the main challenge facing real estate developers today. Most of the developers rely significantly on the money made from pre-launches for financing the project construction. As the home loans have become more expensive and a price correction seems imminent, consumer interest has faded. This has a direct impact on a builder’s ability to develop a project.

                  Raising debt from banks at today's costs has become unviable. The banks have raised their lending rates to developers to 13-15 per cent from 9-11 per cent three months ago. Banks had earlier stopped funding the acquisition of land last year and have now been cautioned by the Reserve Bank of India to reduce their exposure to real estate.

                  Another option for raising money is the capital markets. But the realty companies are having problems on the bourses as well. Their market cap has reduced by more than 20 per cent since the beginning of the calendar year. An analyst with Motilal Oswal said only the large cap stocks (more than Rs 1,000-2,000 crore) had a bright future.

                  “Investors will have faith in only the big players such as Unitech. This is because the ability to execute projects on time will impact an investor who buys and holds on to realty stocks. The large cap companies can structure their funds and usually have a better track record,” the analyst said.

                  Globally, Real Estate Investment Trusts (REITs) play a vital role in financing real estate. “The government spoke of real estate mutual funds and REITs last year. But we are not expecting any positive move in this direction. The year will be dominated by elections,” said Sanjay Chandra, managing director, Unitech.

                  However there is one major difference between today and the property crash of the 1990s. “The option to private equity was not available last time. Funds have raised $9 billion and are just waiting to deploy that money. And it is private equity that is chasing companies, not the other way round,” said Chandra.

                  “Fly-by-night operators will not survive. There will be a weeding-out process. The bigger developers will buy out land and projects of small builders at attractive valuations,” said Arvind Parakh, CEO, Omaxe.

                  The smaller developers are putting their expansion on hold and concentrating on consolidating assets. One such developer from Delhi said, “Most builders will not buy land for the next six months to one year. Financing is too uncertain now. There is no demand and therefore there is no sense in planning new projects right now.”

                  “The future lies in strategic partnerships between bigger firms and smaller, regional players. Smaller firms could also become “land traders” for the bigger firms. Obviously it is the small but clean firms that will strike such partnerships,” said an industry expert.


                  • #10


                    Re : Indian real estate – boom or a bubble?

                    Definitly not a bubble

                    The real estate prices this time are definitley not a bubble about to be burst. The over all economic growth is good enough to avoid any sudden crash in values. The prices are currenlty on a correction path with about 20% reduction on cards. But this correction is seen more in those areas where the appreciation was unsustainable. Where ever did we see the price rise backed by a tangible value add, like some good infrastrucure development, the rise would be sustainable. In such places, the prices may even increase.


                    Have any questions or thoughts about this?