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The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This prepared the basis for the increase in real estate property prices across India. Low interest rates triggered interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open FDI in Real Estate.

Some have suggested that given India's population density is closer to that of Europe than that of America the real value of Indian Real Estate should be close to European levels rather than American levels. When looked at in that way Indian real estate is still cheap. This argument assumes the rapid economic growth in India will have brought per capita income in India to Western European levels within the next 10 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably more as the land distribution market is inefficient. This price increase is mostly happens due to two reason - one primarily in most cases the developers create false claims of overbooking and increase the demand and price and the other reason most of time properties are bought sold within 6-12 months from one buyer to other. There is no system available to the public to track these sells or buys. In US there are lot of real estate website provide the details buy and sell details , what is fair value, when the house was built, how many houses are on sale,etc...

The other factor to consider is cost-to-facility ratio, in Mumbai a 2 bedroom apartment with living space of 1,200 square feet (110 m2) or 1,400 square feet (130 m2) of build up area will cost about 60 Lakhs to 1 Crore or even more, same for other major Indian cities Chennai, Bengaluru, Hyderabad, Pune , Gurgaon,etc.. . Where as in US, Australia, UK or France a 3 bedroom/2.5 bath townhouse which is at least 2,000 square feet (190 m2) around most of metros( other than Manhattan and Los Angeles ) will cost between 250,000 USD to 500,000USD which is between 1 Crore to 2 CroreRs. This houses have parking garage, back yard and with basic Kitchen setup including cabinets, refrigirators, washer and dryer and for higher range may include a private swim pool, basement, front yard. In these western countries average salaries are almost 8 times the Indian salaries but cost of house(For a much better house) is only double. Also the Interest rate paid by indians is almost double that of there developed country pears makes the EMI paid on par with developed countries in many cases.

By its very definition a bubble is a short term phenomenon while Indian real estate market has continued on a secular upward trend, apart from periodic adjustments, in the last 10 years. Bear in mind that there are almost 400 million Indians waiting to hit the middle class group and they will exert additional pressure on the system.Affordability is the most important factor when it comes to housing prices and middle class housing is much levels of affordability in most of the major cities in India. People who compare India with developed European cities, forget the huge difference in affordability in both areas. Of course there is a huge demand for housing but they can only buy what they can afford.

One of the big problem of real-estate market is that supply lags behind demand by about 5 years (Plan-Approve-Finance-Construct time).

Lack of efficient signals to market participants means that there will be periods of mismatch between suppliers and buyers hence leading to cycles of booms and busts.

This article is sponsored by "Nikita Soni"

Company: Geometrics Realestate, Dubai

Contact Number: +9197502157686

Email: nikita@geometrics-re.com

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