The local real estate markets in India.

Here is the scale I use:
1: Investment is Highly justified at the current price(implying that there is no bubble and hence may not see any major correction)
2: Investment is justified (Implies that the growth story of the city looks good)
3: Investment is very risky( implies that there may be a major correction in the next 2-4 years)

Delhi(1.5): Has many be industries around. It is not just IT dependent economy. Hence the prices of homes and rents may see some correction but not a major one.

Mumbai(1): Highly diversified industrial city. IT industries are well located in Mumbai as well as Pune. The real estate prices have not gone over the roof. They are very stable. Extremely good Rent/Cost ratio for real estate investment.

Chennai(2) : Real estate prices are touching the sky. Madras has well diversified industries. In the past 2 years it has received all the major IT investments. Real growth can be seen soon in this city. Real estate investment at current level prices in the Mahindra City belt and Mahabalipuram belt may be justified.

Bangalore(2) : The concentration of IT companies is the highest in this city and hence this city has the highest job opportunities. The real estate prices are already sky high and may stay so because of the unparalleled opportunities. If the government can improve the infrastructure in the next 3-5 years, things will be great in this city. Prices may not go up more than 20%. This city has more or less reached its peak.

Pune(2): Again a well diversified industrial city. Soon, Mumbai and Pune may be viewed as twin cities who complement each other. Pune has great climate, proximity to high number of educational institutions and the advantages of being closer to Mumbai. While most of the states in India have only 1 city dedicate towards IT development. Maharashtra spreading the IT investment between Mumbai and Pune for its own advantage. A trend that Karnataka is following with the development of IT parks in Mysore, besides Bangalore. real estate prices are high. If Maharashtra remains a laggard as it has been compared to Hyderabad, Chennai and Bangalore, in the IT investments, then Pune's growth may stagnate.

Hyderabad(3): This city has a very scary picture. It is completely IT dependent city but not as many IT companies so as to make it the number 1 destination for all IT folks, because the kind of IT jobs in Hyderabad are not as god as they are in Bangalore, Noida and Chennai. Not as diversified as other India cities mentioned above. The real estate prices are as High as Mumbai, Delhi and Chennai. But the rents are the lowest. Which point towards a bubble. In the past 2 years, the government of Andhra Pradesh has done nothing but just declared that companies will come and invest in Hyderabad. Till today none of that has happened. The biggest failure has been the Fab City. No new big projects have come up. They only project that the current government is doing is to develop the International airport, which was already proposed by the previous chief minister,Chandrababu Naidu.

India's real estate market.

The Indian real estate market is currently booming. How long will this last?

Every where there are billboards that display IPO of real estate companies. TV media business channels display real estate IPO ads and also IPO ads of companies which add no real value to human life and lifestyle. This is a clear indication that people are in a stock market frenzy and companies that want to dupe people are making the best by capitalizing through IPO.

By investing in such IPO's real estate is becoming costlier for a common man. The real estate companies are taking money from the common man and using it to acquire lands at very high prices(governments are auctioning lands and such IPO companies bid for such lands at exorbitant prices). Eventually they will sell this to common man or to NRIs. In simple words, the real estate companies are using public money to develop real estate at high prices which eventually leads to unaffordable housing prices.

The dollar flow into India through FIIs and NRIs is causing a lot liquidity in the market, which may cause inflation. RBIs hike in the CRR rate is a clear indication that it is concerned about inflation and wants to put a check on it. While, the US interest rates may decline from mid 2007 onwards, the story may not be same in India. If inflation is still unchecked in India and the US Dollar keeps weakening, it may increase the FII's flow into India and trigger more inflation, forcing RBI to hike the lending interest rates. Eventually this will control the liquidity in the market and may cause the property market to stabilize.

Also, one of the factors that may put a stall on the housing prices is the affordibility. As a rule of thumb, an individual feels comfortable to afford a home that is 4-6 times the multiple of his/her salary. The average income of upper class in India( both wife and husband earning, software engineers) is approximately Rs.12-20 lac. That means they can afford homes worth 48-120 lac. No, wonder the home prices in India are getting to those prices. Note of caution, these kind of homes are affordable to Software professionals because the salaries have not touched these high figures in other job sectors.

In the next few years, salaries will definitely stabilized in India, unless India starts getting more high end jobs, besides the current back office work. In such a case the current price are definitely justified. But, how long can a week dollar be beneficial to India's export is what may dictate the meteoric growth that India has achieved in the past 10 years.