Is the India Property Market on the Road to Recovery?
Even as the international markets experienced an economic slowdown, India property market has remained quite stable. However, according to the world’s 2nd largest property consultant, Jones Lang LaSalle Inc, the growth which has remained at a healthy 17% annually since 2007 is expected to fall to lower than 5% in the coming year. The real estate scenario of a country is affected by the country’s monetary, regulatory and political environment.
In the past months, India’s low economic growth of 5.3%, high inflation, high interest rates, trained government finances and policy flip-flops have been the major reasons that had led to stalling of the economic reforms and weakening of investors’ confidence. The Indian developers and builders faced tough times as the slowdown in the sales of homes, and retail and office space affected their profits.
The slowdown in the sales resulted mainly due to the rising prices in the Indian property market. The rise in the income levels has not been in proportion with the hike in the real estate prices. Employees who earned such a salary package that they could actually plan to invest in realty discovered that while their income did increase, the hike was much less than the rise in the property prices during the period.
This disparity negatively affected the affordability of real estate. With the prices having escalated by about 12% on the past year, the first time buyers of homes have been finding it quite difficult to buy property in India. The scene is especially difficult in the big cities that also have the problem of saturation as the demand for the housing units outstretches the supply that is getting limited due to the lack of fresh project launches. Affordable housing has become a distant dream for the middle class Indians.
In spite of all the problems, the average Indian lays great emphasis on owning a house and making investments in realty. In India, real estate remains one of the most preferred assets and apart from the domestic investors, there are a number of NRIs who prefer investing their surplus income in property in their homeland. Such NRI realty investors give a huge impetus to the demand for luxury housing options.
In the recent times, lowering of the bank lending rates, property price corrections, and government policies that encourage foreign direct investment in Indian real estate sector have worked along with the NRI investments towards stabilizing the realty market in the market.
Another factor that is expected to work in favor of the Indian real estate market is the gradual recovery of the money market and renewed interest in investing in the bonds and equities. As investors get diverted to the Sensex activities, India’s property market will lose the speculators and lead to stabilization of the real estate prices and put an end to the unrealistic appreciation in the realty capital values that had made buying property out of reach of the common man.
The development of the social and civic infrastructure in even the smaller cities of the country will also ease the pressure on the big cities and make more livable housing options available for the average Indian.