[T.S.R:17429] India Real Estate: A Bubble As Large As The US Housing Bubble

House prices in six cities have registered double-digit increases since 2007, similar to the US, Ireland and Spain. 

Regulators across the world are beginning to realise there is a link between financial crises and real estate prices. Considering banks had a big role to play in the sub-prime crisis, regulators are now concerned about spiraling home prices in India too. While banks and home owners refuse to acknowledge that home prices are near bubble levels, data seems to suggest otherwise. 

Analysis shows some six cities have seen home prices go up in double digits since 2007, indicative of a bubble. In fact, in the second half of 2008, after the global financial crisis had begun, prices corrected in some markets but home prices in Mumbai, Kolkata and Faridabad continued to rise.

The National Housing Bank (NHB) has been tracking home prices across 15 Indian cities since 2007. The NHB-Residex shows prices have risen in most cities over the last four years. Prices in Hyderabad and Jaipur are lower than 2007 base level. In Bangalore, prices have jumped 37 per cent in one quarter alone. The Bangalore index jumped to 101 in October-December 2010 from 74 in July-September 2010. In four years, indices have doubled in Kolkata and Chennai. 

In a report, STCI Primary Dealer has compared the increase in NHB's Residex with that of housing indices in other bubble markets like Ireland, USA and Spain. In US, Case Shiller Index gives the price trends across 20 US cities. In January 2000, the index was at 100.59. It doubled in April 2006, marking a compounded annual growth rate (CAGR) of 12.1 per cent. The index has declined 31.4 per cent since the peak. In Ireland, too, housing prices index was around 33.6 in 1996, which peaked to 139.4 in 2006, marking a CAGR of 15.3 per cent. Prices have declined since then. 

So, how have prices moved in India? Out of 15 Indian cities, eight have seen double digit CAGR increases since 2007. Kolkata and Chennai have registered higher growth than cities in three bubble economies of Ireland, Spain and the USA. Faridabad, Bhopal and Mumbai are very close to Ireland average as well. 

Compared to growth in US Composite 20 Index, growth is seen higher in six Indian cities — Kolkata, Chennai, Faridabad, Bhopal, Mumbai and Ahmedabad. Clearly, double digit increase in home prices is indicative of a bubble, and regulators need to take cogisance of this, before it's too late.
 

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Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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