Ups and Downs of Indian Real Estate Market

October 17, 2008	(3 votes, average: 3.33 out of 5)  Loading ...
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A very interesting change has been occurring in India over the past five years — real estate has become abundantly available to the common person for end-use or investment purposes, more conveniently than ever before in the history of our economy. This has also led to euphoric expectations that real estate prices rise forever. However, this could not be farther away from the truth. Experiences from around the world suggest that real estate prices are prone to the same booms and busts as seen in the stock market. We are not prophets of some imminent doom in Indian real estate. But, we are preaching caution in the event we were to suffer a similar correction like that occurring in real estate markets around the world.

Let us start with a quick history lesson. Perhaps the most spectacular and long-drawn correction in real estate occurred in Japan in the early 1990s. The speculative excesses of the 1980s fizzled out very quickly, leading to price declines of up to 50 per cent in the large metros. It took over a decade for prices to start stabilising. But before this happened, several families faced severe financial hardship and distress in seeing the most expensive asset of their lives plummet in value. Before you say that this might have been an isolated event, unique to Japan, let us remind you that the current global credit crisis has been accompanied by a severe correction in real estate prices in the US, the UK, Ireland and Spain to name but a handful of countries.

In each market, real estate buyers outstretched their financial resources, blindly buying into the mistaken notion that property prices only go up. Unfortunately, most of these buyers are today getting a shocking dose of reality. Like in Japan 15 years ago, families are facing financial distress and in some cases, ruin. This is not just a developed-market phenomenon. China, too, is currently facing a correction in its real estate market with prices having dropped by up to 40 per cent in some regions.

So what can we in India learn about real estate from the experience of other countries? Prices can’t keep going up forever: just like trees don’t grow to the sky, property prices can’t keep on rising. If you base your purchase on this assumption, you are ignoring centuries of economic history. Your expectations and your property value might come crashing down to earth.

News Published Under:   Property Prices |

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