Indian housing market and falling real estate prices | ValueNotes Connect – Jul 17

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Welcome to the July issue of ValueNotes Connect.

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IMF’s Global House Price Index, a simple average of real house prices for 57 countries, is now almost back to the level before the financial crisis during 2007-08. According to a note published at the end of last year, many of the past housing booms were driven by excessive credit growth. But this time, supply constraints appear to be playing a big role in driving some of the price booms.

The housing situation in India paints a very different picture… Home sales are down, inventories are up, and prices are weak. Rising prices ostensibly signal robust demand, which in turn should trigger supply responses that drive growth and employment. Unfortunately, most of the benefits tilt in favour of developers and investors/speculators. The real problem in the country is that rapidly rising prices make housing unaffordable for those who don’t have it.

Until recently, ‘real estate’ was a dirty word in India, ridden with corruption, unaccounted cash, delays in construction deadlines, and an over-dependence of developers on informal sources of finance to fund their projects. The recent Real Estate Regulation Act (RERA) and real estate investment trusts (REITs) are likely to offer the sector some respite. The new law is expected to bring about transparency and accountability, and boost the affordable housing segment.

Lastly, do a have a look at what the Housing for All by 2022 scheme could mean for building material companies in terms of business opportunities.

As always, we hope you enjoy reading our newsletter, and we look forward to your comments.

Best regards.

Why falling (low) real estate prices are good for India

by Arun Jethmalani

Newspaper headlines always play up the trend of rising house prices. Rapid rises are deemed as positive news, while declines are negative. Rising prices ostensibly signal robust demand, which in turn should trigger supply responses that drive growth and employment. Unfortunately, most of the benefits accrue to developers and investors/speculators. Owner occupants see a notional gain and feel happy, but most will never realize the cash value in their lifetimes. The real problem is that rapidly rising prices make housing unaffordable for those who don’t have it (or enough of it).

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Will India get it REIT?

by Nandita Harendra

Until recently, ‘real estate’ was a dirty word in India, ridden with corruption, unaccounted cash, delays in construction deadlines, and an over-dependence of developers on friends and other informal sources of finance to fund their projects…the list goes on. Today, the opportunities the sector offers are potentially optimistic; the reason why private equity (PE) firms and other investors will be more than happy to park their money in realty. India’s real estate sector is set for a major makeover and will see a huge boost in investments..

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