- Posted December 2, 2013 by
The Housing Bubble in India Could Impact Its Fragile Economy
Inventory levels are comparatively less in Delhi-NCR and Bangalore, but relatively high from a historical perspective. Rising inventory is not news. In September, realty consultant Jones Lang LaSalle said builders in Mumbai are sitting on inventory of 48 months. The accepted level of inventory in Mumbai is around 14-15 months.
What's important to note is the fact that developers have managed to hold on to prices despite plummeting sales and rising inventories. A price cut might not happen. Instead, buyers can negotiate for 5-10 per cent discounts through promotional schemes such as rent-free period of accommodation and waiver of registration and stamp duty charges.
The Reserve Bank of India is also worried about high property prices. On Friday, it asked banks why they have not raised interest rates despite the central bank hiking policy rates twice since September 2013. Higher rates would not only hit property sales, but may also contribute to loan delinquencies. And with the central bank keen on fighting inflation, interest rates may rise sooner than expected. Clearly, the realty sector is in for tougher days ahead despite an extended lean patch.
The Indian property market has not escaped attention of global economists either. In a column written for Project Syndicate last week, noted economist Nouriel Roubini said there are signs of frothiness in property markets across the globe, including India. "Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt," Roubini said.
The 2007-08 global financial crisis was triggered by the collapse of housing bubble in the US. The question many are weighing is whether the bubble in domestic property prices will pull down India's fragile economy, already growing at the slowest pace in a decade.