While it is comforting for many to hear from the RBI governor that there is no property bubble ready to burst in India , there are several economists who caution on the contrary. Most realty experts are afraid that it is a danger in the making. Property bubble, characterised by rapid increase in valuation of real estate until it reaches unsustainable levels and then collapse, is simmering in India .
Till very recently, for a middle class Indian, investing in gold or property was always the best bet. More so, when on an average, values for both shot up four times in the last decade. However, now there are increasing signs that the dream run that real estate has enjoyed could come to a halt. Just, as what happened with the yellow metal price charts. Real estate analysts already point to slowing sales and rising inventories both in big cities and in small towns.
Over the past decade, such bubbles have been reported from various countries including the US , Britain , Singapore , the Netherlands , Canada and Germany among others. All these nations faced real estate bubble which was followed by critical price falls, taking property valuations below the mortgage value.
So, the question is, could 2013 be the year when real estate begins to crackIJ Analysts say that the bubble started building up in 2002 continuing till 2009, when prices started appreciating. However since 2010, the prices are growing in a way where it is becoming exceedingly expensive, primarily because of two reasons. First being the farfetched claims of overbooking by developers, thereby creating a false shortage and secondly, the short span of possession of property which ranges from six to 12 months. With every change of hand, the profit keeps increasing.
According to experts, the entire real estate sector can gain transparency and be saved from the bubble burst simply by strictly tracking short-term purchase and sale. Analysts suggest that policymakers should look at providing a system to track sale and purchase and to document and publish details of buy and sale, with details of previous owners, if any, apart from providing details of fair value, buildings’ age and the number of such houses or flats on sale in an area.
While, presently RBI tracks the housing price index, experts suggest that there should be a regulator for this, which can also track and develop a financial ratio about valuation of property. This would prevent the rates from being unrealistic and astronomical.
Real estate plays an important role in the Indian economy, as it is the second largest employer after agriculture. The size of the Indian real estate market is expected to touch US dollar 180 billion by 2020. Policymakers need to tackle the lack of transparency which is marring the growth prospects of the sector.