The Property Bubble That Doesn’t Burst

The Indian real estate industry has been under the scanner of late, as a battle rages between naysayers, those who say its due for a 15 per cent or so correction, and the bulls, who say it will rise by at least 10 per cent this year, making it difficult for even industry gurus to estimate where it’s headed.

A lot is stacked up against the property sector as global markets show no signs of sustained recovery and the local economy faces serious setbacks. Interest rates, for one thing, are sky-high, since India’s Central Bank has raised interest rates 13 times in the last two years. To top that, consumer prices are rising at above 10 per cent levels, while repo rates are eight per cent, which literally means that people’s savings are getting eroded. This in turn has diminished the Indian consumer’s purchasing power. Growth rates have fallen to 5.3 per cent in the first quarter of 2012, marking – many fear – the start of a downturn.

“Property prices will fall by 10-15 per cent,” says Reetesh Talwar, AGM marketing of Ansal API, with candidness that his counterparts don’t always mimic. “The largest drop will be in metropolitan cities and in buildings that are under construction.”

This beckons the question: who dares buy property in India now?

The answer, according to industry experts, is non-resident Indians (NRIs). Why? Because of the historic depreciation of the rupee, which has lost 46 per cent in value since 2008, and therefore immediately discounts Indian property for NRIs by more than 20 per cent.

“This is true especially for NRIs in the Gulf region,” says Shanti Poduval, senior manager of sales and marketing, Sobha Developers, as the rupee is hovering at near historic lows of 15 to a dirham. “We have witnessed an increased interest from them by almost 15-20 per cent over the last year.”

Adding to the allure is the fact that applying for a housing loan from the UAE is relatively easy, as Senthil Nagarajan of Axis Bank clarifies, “All you need is to be earning Dhs 5000 a month. We can sanction loans within 15 working days and don’t even require property papers for that,” The bank has seen an increase of 15-20 per cent in loan applications in 2012 alone.

Historically, India has the world’s fastest growing real estate market. According to the Lloyds TSB International Global Housing Market Review home prices have been rising by an astonishing 284 per cent since 2001, which is equivalent to an average annual rise of 14 per cent.

So while the property market may be weighed down by micro and macro fundamentals, it seems like that inevitable fall could be avoided with increased NRI interest.

Putting it all in perspective, it seems that like all things Indian, the fate of the property market may just be a matter of destiny.