In India, what goes up must keep going up

August 2, 2012

With a faltering economy, political gridlock, high interest rates, delayed monsoons and an epic power outage that has plunged half its 1.2 billion population into darkness, optimism is a sparse commodity in India.

Just not when it comes to rising house prices.

‘What goes up a lot must keep going up’ was the conclusion from the very first Reuters Indian housing market poll this week. And it sounded very familiar.

Past experience shows that respondents to housing market polls – whether they be independent analysts, mortgage brokers, chartered surveyors – tend to cling to an optimistic tone even as trouble clearly brews below the surface.

That was the case before the historic U.S. housing market crash that sent prices plummeting by more than a third and triggered the financial crisis. Five years later the market is still trying to find its footing.

Spin the globe over to South Asia.

India’s two biggest cities, Mumbai and Delhi, have become prohibitively expensive for average people to purchase property without stretching themselves financially. Average Indian house prices have doubled over the past five years.

Accordingly, sales volumes have fallen off sharply.

The vast majority of analysts polled by Reuters described these housing markets as ‘highly overvalued’ – in the most emphatic terms to  this standard question in any Reuters housing market poll conducted over the past seven years.

But these same analysts are forecasting an average 7.5 percent house price rise in India this year. Some expected a 10 to 15 percent rise.

And it is not like there is no real demand in India. As one of the poorest countries in the world, it has hundreds of millions of people who simply can’t afford to buy a decent home.

Nowhere is this more evident than in India’s financial capital, Mumbai, formerly Bombay. More than 60 percent of the population live in shantytowns and slums that often lack basic amenities, giving the city the nickname “Slumbai”.

This is the same city where a 2,000 square foot flat in the posh southern district can cost more than $3 million, the same or more than similar properties in Kensington in central London.

Even new housing projects located miles away from the city have spawned skyrocketing prices, but few are fully occupied.

Pankaj Kapoor, founder and managing director of Liases Foras, a real estate research firm, spoke of how projects under construction on the outskirts of Delhi were more brightly illuminated than the completed ones.

Builders would use halogen bulbs to light up newly contructed, unsold apartments and feign occupation while completed projects looked less radiant as they were owned by speculators, not real inhabitants.

That sounds a lot like the new ghost towns of Spain.

“There is no social fabric, no shops and (home buyers) will not be able to live there. I feel some of these properties are 10 to 15 years away from any kind of habitation,” Kapoor said.

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  • About Anooja

    "Six years in Reuters covering macroeconomics and polling mainly for the G7, parts of Africa and the Gulf. Presently looking after polls and economic data coverage and writing about the exciting and complex economies of Asia. Have worked in Bangalore and Singapore."
    Hometown:
    Bangalore
    Joined Reuters:
    2005
    Languages:
    English, Hindi
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