No housing bubble in India
Housing prices elsewhere have collapsed. There has been talk that India might witness such a correction. Rubbish. There's no real estate bubble here, as Keki Mistry, MD of HDFC pointed out recently.
True, housing prices have shot up. True also that EMIs have gone up thanks to the increase in interest rates. But, compare affordability- income in the relevant segment to EMIs- with those of 15 years ago and you realise how far we have travelled. This ratio is 4.9 today, according to Mistry, compared to nearly 15 about ten years- an improvement by a factor of three!
Affordability is better for a number of reasons:
True, housing prices have shot up. True also that EMIs have gone up thanks to the increase in interest rates. But, compare affordability- income in the relevant segment to EMIs- with those of 15 years ago and you realise how far we have travelled. This ratio is 4.9 today, according to Mistry, compared to nearly 15 about ten years- an improvement by a factor of three!
Affordability is better for a number of reasons:
- Sharp increases in income
- Lower interest rates
- Tax incentives for housing
Remember this the next time somebody comes up with a doom scenario for India arising from a collapse in housing prices similar to what we have seen elsewhere.
Labels: Indianeconomy
posted by T T Ram Mohan at 4:05 PM
6 Comments:
There are also a good number of things that every country, including India, can learn from the current collapse of the American housing bubble. If lenders in India can stay away from handing out money to people who can't afford a payment, they will go a long way towards keeping the housing market stable and increasing economic prosperity. Just the opposite seems to be happening in the US market now. But good for India not to fall into the same kind of subprime lending traps.
While the problem is real enough, the government’s response has sometimes been heavy-handed. The restriction on preference shares hit all sectors, not just real estate. Secondly, real estate is a legitimate business, which should be allowed to access capital.
The only long-term solution to the property bubble is to increase supply. This includes making it easier to change land use from agriculture to industry, increasing the floor-area ratio and releasing land which is under-utilized by the government, such as land owned by the Bombay Port Trust. If India is to urbanize at a rapid pace it needs flourishing real estate companies.For more view-realtydigest.blogspot.com
There is no doubt that the prices to buy do not match the prices to rent. Read the below article for a comparison
http://bangalore.craigslist.co.in/rfs/674729675.html
Also the correction has already begun
http://economictimes.indiatimes.com/Markets/Real_Estate/Realty_does_reality_check_prices_fall_15-20_in_Q1/articleshow/3028660.cms
High demand didn't back the bubble in long term. When we are saying there is no bubble, does it means there is high demand and the price level is sustainable by the income level ?
In 2007 the HDFC CEO Mr Parekh & ICICI CEO Mr Kamath predicted that there will be a correction to housing market in the last quarter of 2007 onwards & which is currently going on[Ref: Times of India]. The builder lobby is by bribing the people & media is trying to crate a false picture of market to sustain the exorbitant price level. Therotically one can support the builders based on demand & supply data but these are not the only factors, it's good for book only.
The salary of a DRDO engineer in 2000 was Rs 15000 in 2008 it is 25000. The price of a two B/R apartment in 2000 was 10 lakhs rupees , in 2008 it is 50 lakhs rupees. Where is the comparision. It is IT jobs drive the price. Soon the jobs will move to China or USA and the boom will burst. SELL your house now and make money. Don't trust BANKS , BUILDERS and GOVERMENT DATA. They all are fake.
I want to understand your points on....
Affordability is better for a number of reasons:
Sharp increases in income
Lower interest rates
Tax incentives for housing
....
Sharp increase in income...but a sharper increase in other goods rate..a sharper increase in inflation...
Lower interest rate?? Sure about this? Do you know in India it is about 3 times than the USA, the interest rate.
Tax incentive for housing...that was a long time ago..and once you have taken a loan ..you are trapped in it. But the tax laws changes every year..and its not in our favor..
It's better to accept the fact..we R in a bubble..
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