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.
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India has "enormous potential in all its property investment categories". Strong population growth, a large pool of qualified workers, greater integration with the world economy and increasing domestic and foreign investment are fuelling demand for office, retail and residential property. India’s burgeoning middle class will drive up nominal retail sales through 2010 by 10% p.a. At the same time, organised retail is becoming more important. At present organised retail accounts for a mere 3% of the total; by 2010 this share will already have reached 10%.India is the prime destination for IT services outsourcing. In the coming five years, at least 55 million m² of extra office space must be completed in the premium office segment alone. Property investments in India are not risk-free. Market transparency is far behind European or US standards. It is therefore vital for foreign investors to have a professional local partner. The lack of liquidity and upward pressure of pricing remain the main concern within the market.For more view- realtydigest.blogspot.com
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