IMF says Indian real estate is sitting on a bubble

NEW YORK: If one goes by the recent report by the International Monetary Fund (IMF), buying homes in the US at present will be a good move as real estate prices are showing healthy trends, while in India it is the other way around as the indications show that the industry is sitting on a bubble about to pop.

The IMF’s data on global housing prices shows that among 52 major global markets, India was the worst performer, while the US is just behind China and Brazil in terms of annual growth in the real estate sector.

For Brazil according to some reports, the country’s realty sector is heading towards recession again while in China, many economists feel that the boom is waiting to go bust for real estate sector. However, the real estate in US, amongst the developed economies, is the healthiest and the more stable, according to the report.

The US has registered a 6.6% growth in the last quarter of 2013 compared to the corresponding quarter of the previous year amongst developed countries, followed by Germany (5.1%) and UK (3/5%).

Italy was the hardest hit among European nations, which showed the depreciation of 6.5 percent, with France too declining at 1.9 percent.

Property prices in Greece, Portugal, Cyprus, Italy and Spain are also down, while Ireland, which was hit by the recession, jumped back with the growth figures of 4.3%.

Of the 52 countries, 33 have witnessed increase in prices, while property has become cheaper in 19 countries, said the report.

India fared worst among BRICS nations with a massive slide of 9.1%, followed by Russia (5.8%) in property prices. While China showed whopping 9.1% growth, South Africa and Brazil clocked 2.7% and   7.4% growth respectively.

However, a recent report from Design&Trend said that the Indian real estateIMF was concerned about empty real estate developments in China’s second and third tier cities. Developers and lenders have been devoting enormous amounts of money into real estate and the problem is, people aren’t moving into it.

The oversupply problem in these cities is bad, the IMF said it could likely derail China’s economy.

In the year 2000, real estate accounted for around 5% of China’s GDP. By 2012 it rose to 15 percent, according to the IMF’s calculations. It certainly did not decline in 2013 and 2014, despite Beijing working overtime in forcing a market correction.

For India, the National Housing Bank (NHB) Residex index, showed a mixed trend in Q1 2014, with 13 of the 26 cities for which property price data was available witnessing an increase in prices and 13 registering declines.
 

Global Property Guide’s analysis of India says that due to high inflation, a comparison of house prices at nominal rates might give a misleading result. At inflation-adjusted rates prices, it says, prices have actually fallen in 21 of 26 cities.

As real estate in India is a highly unregulated market the problem might be much bigger. According to Global Real Estate Transparency Index-2014, a ‘fairness in property transactions’ ranking complied by a US-based real-estate consultancy, India’s property market falls under the semi-transparent category.

 

Among 102 major real estate markets ranked by the consultancy, India’s tier-1 cities’ property market is ranked 40th while tier-2 and tier-3 markets are 42nd and 50th respectively in the world. All of them are labeled semi-transparent.