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Property Prices Skyrocketing in Delhi and Mumbai

Comments Off on Property Prices Skyrocketing in Delhi and Mumbai   |   October 8, 2010    12:42pm   |Contributed by Indian Realty News

This is one question that is in the minds of almost everyone looking for property in Mumbai, Delhi or any other city where prices have spun out of control. However, speculating about real estate bubbles on the Indian market without looking at the facts is the work of a doomsayer, not an analyst.

So, let’s define a bubble first. In a normal market, prices do rise, but only in tandem with the rate of inflation or a rise in middle-class incomes. Real estate enters bubble territory when prices climb unrealistically fast. But is that the case today? It is definitely a possibility, but only in the cities where prices have actually skyrocketed beyond affordability. It can be argued that they have done so almost everywhere in the country, but the fact is that local people are still buying homes on as-needed basis in most tier-II and tier-III cities. Nor is the supply in most of those cities either overly constrained or curtailed. So, when we talk of the possibility of a bubble, we’re actually only talking of property in Mumbai and Delhi right now.

The real estate market in Delhi led the correction, and Mumbai fell in line next. Both bounced back after the introduction of stimulus packages and the government’s actions in restructuring debt. During the revival phase, a large amount of capital sitting on the fences immediately saw an opportunity. This was first seen in the equity markets, and then later in the real estate and gold commodity markets – all three classes bounced back convincingly.

There is, therefore, a concern that these two markets have demonstrated higher-than- expected enthusiasm, especially in the central parts in the case of Mumbai, and Gurgaon and Noida for Delhi. A lot of investors have plugged in considerable amounts of capital in these regions, and the values, on an average, have now gone 30% higher than the last peak. Some of the residential developments in central Mumbai in 2008 had peaked at `30,000/sq ft. Today, they stand at 38,000/sq ft.

The kind of volumes that we have witnessed in the first half of 2010 has come down dramatically but the liquidity situation in the market has not dropped, and neither has the appetite for investment. In fact, the same enthusiasm, which had been previously contracted by the central parts of Mumbai, is now spreading towards the other parts of the city.

There is yet another reason for the concern over a bubble building on the market. All developers who had ventured to buy land overseas or across India are now buying only in the primary cities. In other words, Mumbai developers are concentrating on acquiring land solely in Mumbai, and the same is happening in Gurgaon. Investments are now chasing these tier-1 markets. If this continues, then there is certainly the probability of a bubble in residential property by the end of the year.

News Published Under:   Delhi, Faridabad, Gurgaon, Mumbai, Noida, Pune, Real Estate Developers, Real Estate India | Comments Off on Property Prices Skyrocketing in Delhi and Mumbai