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Commentary

The Housing Bubble in India Continues, Some Corrections Visible

RBI has released the latest data for their House Price Index and it looks like the mad pace of real estate price growth has mellowed, but only slightly. Price growth at an all India basis is now 19% from last year.

India House Price Index

Unfortunately, RBI has not released information about transactions, so we don’t know if volumes are up or down.

Housing prices were very high last quarter as well, with prices up 26% year on year. However, every city is different; some cities seem to have slowed down price growth while others have picked up pace significantly.

Mumbai and Delhi Still Red-Hot, But Slower Than Earlier Quarter

Mumbai shows YoY growth of just 11% after a scorching 30% growth in the December quarter (year on year).

Mumbai Delhi HPI

Delhi, though, continues to be in scorched earth territory, moving up 33% from last year. Prices have gone up an annualized 30% or more since September 2011, and the index has now reached 259 from a 100 in March 2009 (a compounded growth of 27%, the highest of all cities).

Bangalore and Chennai Show Faster Growth

Bangalore Chennai HPI

Bangalore hit 5% price growth in Q4 (March 2013). This is benign, for now.

Chennai is now at 26% price growth and again, looks like it has gone out of control.

Kolkata and Lucknow: The Hot Air Balloons

Kolkata and Lucknow HPI Kolkata has gone absolutely nuts with a 63% price growth, taking its own compounded price growth from 2009 to 27%, just behind Delhi.

Lucknow, with 29% YoY growth, is still among the fastest growers.

Note that the drop in transaction volumes in the previous quarter seems to have had no impact on price growth.

Jaipur grows 18%, Ahmedabad remains at 9%

Jaipur and Ahmedabad HPI

Jaipur prics are up the highest since December 2010 (on a yoy growth basis).

Ahmedabad shows signs of softening, though prices have grown slower in the 2010-11 time frame.

Kanpur the weakest link

Kanpur HPI

Kanpur shows a drop of over 21% on prices. Last time I was told of some inaccuracies in Kanpur in that much of the price is in “black” (paid in cash) and thus not recorded.

Compounded Growth Rate Since 2009 at 21%

As of March 2013, Prices have more than doubled since 2009. The All-India Index is at 211, from 100 in March 2009.

Compounded HPI Growth

The bubble is intact.

But is the bubble bursting? QoQ growth is the second lowest since the data has been recorded – an all India QoQ growth level of 2.1% (versus 6.4% last quarter).

Credit will be constrained from July onwards, so it is quite likely that price growth is hit. Already, rental prices have flattened or reduced, and commercial rents and prices are down (speaking of the June quarter, from anecdotal information). A credit crunch could well cause developer defaults, and then prices will truly fall. For now, the bubble is well and truly visible.

  • Thomas Mathew says:

    Is the same data available for other cities in India? I am basically looking for house price changes for Trivandrum,Kerala

  • XYZ says:

    Kerala is where the bubble’s at. Just my opinion though.

  • Why will credit be constrained from July?

    • Piyush says:

      Credit is constrained because RBI tightened liquidity in July to protect currency and consequently, all short-term and long-term interest rates shot up sharply. 10 year gsec is higher by about 1.50% while short-term rates have also gone up by around 2.5% to 3%. With the new RBI guidelines on 20:80 schemes, credit is constrained even further.

  • No mention of Pune here? I believe this is one property market that has not seen any “correction” ever since I am following it for last 8 years or so.

    • Shashi says:

      Deepak,
      We are eagerly looking at data on Pune and your opinion on the same. Few readers had requested the same the last time you posted on the same topic. Looking forward to data and your views
      Shashi

    • Piyush says:

      8 years is too short a period to call it ‘ever’. it may not even be long enough to cover half of a full real-estate cycle.

  • amit says:

    Housing Bubble needs to burst it seems every financial industry guy has been saying this for the last 15 years since I have been tracking housing . Unfortunately it just keeps going up , Maybe slowly fine But up it goes. Why ??
    Will there be a 20% of 30% correction say within couple of years ?? Feasible ?? Possible ?
    Lets put the assumptions behind a possible housing crash
    1.It assumes impplicitly that interest rates say 5 years from NOW will be at least same as of today . Or if you think that interest rates will be say around 7-8% do you really think that same person with same income who will be now able to afford a higher priced house(at least 20%-30% higher) will actually be able to buy same house priced today at 1 cr and Of course Seller of house will NOT be able to raise price by 30% . Implicit assumption needs thought .
    2. The credit growth , the debasing of Rupee , reduction in interest rates all would contribute to the house price increase or lets assume for housing crash that Credit Growth(money printing) will NOT raise price of something which cannot be printed/conjured up by a Central Bank
    3. The biggest assumption is that people Indians will stop buying high priced house or that the millions of middle class indians demand will be lower than supply . Seriously ??? With next 5 years the guys who are at 22-28 will marry , have a family . Do you think most single men, women already own their own house ?? Enough supply present ?? Price becomes automatically affordable when you combine two single working Man and Woman and Marry them . Think .How can anyone assume that most people who want to have their own home already have their own home ??
    4. Black money . We will have to assume that black money will disappear . Good Luck. See you 50 years from now .
    5. US housing bubble , Spain etc are given examples . ITs comparing apples with GINGER . US people paid less than 5% infact sometimes 0 down for getting a home with zero income . NINJA loans … Try doing that in India . try to get a home loan with 15% down . Try .
    In fact its opposite because of black money probably 30-40% is own EQUTIY in home for Indians . HOws that for people clamouring for housing bubble crash . Should we assume 40% down of housing ?? You think indian who has bought a home is really leveraged ?? NO its opposite as explained above due to black money .
    6. I will write much more detail in my blog . Wait for it

  • PrAvEen says:

    Is it really a BUBBLE!!!!!

  • Inder says:

    Isn’t the prices mentioned here the guidance value at which homes are registered ?
    In that case, there hasn’t been a revision in Blr since 2011 (mid).
    (Will be revised soon next month with a huge 40-50% jump)
    So unless someone registers the home at market value, is the slow growth in Blr a reflection of a constant guidance value ?

  • XYZ says:

    lol! It’s funny how people react when someone even mentions the possibility of a property bubble. People are so invested in property now especially the middle class. In fact, the bubble might last for a generation or two. Is it then a bubble? There are no good alternatives for investment. The real productive economy is dying. How long can this game be sustained?

  • Investors showing their interest in investing in real estate in these days. Thanks for sharing information about house price index comparison charts. It will be helpful for the buyers to plan good.