Indian Realty 2007 – What’s in Store?

2006 was a boom year for Indian realty – funds
were accessed from very successful public offerings, and the demand
for commercial spaces zoomed, accelerating construction activity
across the urban landscape.

Opinions are divided on the course real estate will take in 2007.
On the one hand, we have an $8 billion projected foreign investment,
with international developers and investors combing the Indian
market for prospective projects and tie-ups. Retail is expected
to drive real
estate, with hypermarkets dominating the scene. With
an estimated growth rate of 8%, the economy would facilitate more
trade and travel, and continue to sustain the hotel industry.
The healthy growth in employment and better pay scales would continue
to prop the demand for residential property and investment
in real estate. What more could one ask for?

A word of caution, however, from the conservatives. With rising
inflation, interest rates are being raised even internationally,
and money may not flow in as easily. Even though a recently published
report by AFIRE, an independent ranking agency based in the US
placed India as a "hot destination for investment in
real estate", Japan is emerging as a strong contender
for India, with real estate prices having dropped by 70% there.

Some economists have even warned of India falling into the same
trap that South-East Asian countries Thailand
and Indonesia
fell into in 1997, where economic conditions were similar to present-day
India’s, before the crisis struck. High lendings to real estate
during the boom led to a crash when property prices started falling,
causing banks to buckle under bad debts. However, India is protected
from such a crisis with its huge demand for property, and its
healthy stock market, which was not the case in those economies.

Taking the middle road, one anticipates a price correction, rather
than a slowdown, for 2007. With all the factors in its favour,
and with the RBI taking firm precautionary steps,
Indian realty is already witnessing a leveling of property rates.
Chandigarh, Amritsar, Jaipur, Rudrapur are more affordable by
10-20%, while NCR has dipped by a moderate 5-10%. Mumbai, Bangalore,
Pune and Chennai are stabilizing too

Industry observers are noting a backing off by speculators and
increased demand from end-users. In the absence of guesswork,
house-hunters are able to buy property at discounts directly from
builders.

Real estate consultants confirm that the latent demand in India
is strong enough to keep commercial and residential property thriving
for a long time to come, and that this correction is not the beginning
of any deceleration.

Photo: Construction site in West India Dock – geograph.org.uk – 2806369 by David Anstiss, licensed under CC BY-SA 2.0, via Wikimedia Commons.