Most asset classes, including gold, have shown some signs of volatility in prices in recent times. But when it comes to prices in Indian realty, the asset class seems to be resolutely bucking the trend.
If buying a house in India wasn't already prohibitively expensive, first-time buyers now also have to contend with rapidly rising prices. Property prices have increased by 12% over the past year, according to the global house price index survey by property consultants, Knight Frank. This has put India in the third place among 53 countries where prices appreciated over the past year. Brazil recorded the highest growth of 23.5% YoY, followed by Estonia with a 13.9% YoY increase.
While emerging markets are still seeing prices appreciate on account of higher demand, globally the story is quite different. Global property prices have seen their weakest annual performance since the recession in 2009. Global prices saw a dismal 0.9% YoY growth in the year ending March 2012. According to Knight Frank, Eurozone fears and Asian government's efforts to cool property markets may have taken a toll on prices.
India's rapid increase in property prices may be good news for developers. However for buyers it has been a nightmare. Higher prices may have impacted demand, albeit in certain pockets. According to a Firstpost report in late 2011, property sales in Mumbai's overheated market dropped by a whopping 70% from their 2007 peak levels. This was as overall prices rose 20%. The highest drop in sales was seen in Central Mumbai, where the amount of unsold inventory increased to 45% of the launched units. Slowing demand has in fact prompted some real estate developers such as DLF and Unitech to slow new project launches.
Either way, home prices are not expected to come down significantly in the near term. Thus affordable housing continues to be a distant dream for a large number of India's middle class population. One solution for the same however is for the government to build better transport infrastructure and satellite towns. This will help ease the burden on larger cities and urban infrastructure. Plus it will also help normalize housing prices in those areas.