Would the Real Estate Bubble Expand or Burst in 2014?
Based on the prevailing situations in the country like political ambiguity, problems in liquidity, high rate of interest and the watchful consumer sentiments, it is likely that the real estate sector in the year 2014 would face more challenges.
The first and foremost question that arises while looking at the real estate sector in the coming year is ‘would the real estate bubble expand further or would it burst?
While, taking a look at the real estate in 2013, it is observed that the sector was stalled with the existing challenges such as restrained sales, increased number of unsold inventories and builders facing bankruptcy. If these issues continue in the coming year, then definitely the situation in the real estate sector will become worse. Since, the real estate market doesn't follow any fixed method; hence it is very difficult to predict anything about the sector in India. Though, many challenges like the political volatility, liquidity issues, increasing interest rates and the consumer sentiments are likely to stop the bubble of the sector or may burst it, the only positive note in these challenges is the sales factor which is slow but has not stopped.
As, the country's economy is under pressure, the real estate market has become unpredictable for quite some time. The realty prices are also rising and falling in an exceptional way dissimilar to the income levels, which are not rising. Since, the sector is largely capital-driven, the increase in price is generally conjectural. Undoubtedly, it is a known factor that the low interest rates approach by the central banks is cause for real estate bubble in the advanced world. With the foreign investors looking for other investment opportunities, the surplus money has also burst into the real estate markets of emerging economies.
To understand the conception of the real estate asset bubble, let us take consider significant markets across various cities in the country.
The MMR (Mumbai Metropolitan Region) Market: The annual price growth post the 2008 collapsed and the MMR markets observed around 48 percent of considerable money and in the second quarter of the FY 2010-11 the MMR markets saw considerable money of 54 percent and later the marker bubble started decreasing.
Due to high price levels and decline sales, the MMR market platform was not productive and also the cash inflow reduced. Though, the rise in property prices was fairly slow, but the pace of yieldwas still slow.
NCR (National Capital Region, which includes New Delhi): NCR Market is considered as investor-driven market. Property prices raised post FY 2010-11 and remains the same even today. The market witnessed a margin of 27 percent year-on-year in the second quarter of FY 2012-13 and the growth rate has started to cease. The secondary market has already seen price correction. It looks like the MMR and NCR markets in the stage of bursting. With the unsold stock piling in these markets, changes in prices might soon begin to tip off.
Bangalore and Pune: Being aware of situation in NCR and MMR markets, investors turned towards IT hubs, like Bangalore and Pune in FY 2009-10. The markets in these cities become favorable to investors and witness enormous inflow of funds. These cities saw a price rise by 20 percent in the FY 2012-13 when the IT sector subdued and this is where the problems started.
These two cities witnessed huge inflow of money and these markets were flooded with FDI and PE funds that led to a gush in the price levels that made it as a hypothetical investor-driven market. After a surge in price the sales become to decline and in order to boost the sales price correction would start in the second or their quarter.
Chennai: Chennai City is considered as one of the best performing city currently, but it has its own flaws like inventory that are still unsold over months' and the prices increase in the last couple of quarters. But, price correction in the secondary market has already begun past two quartersin Chennai.
Kolkata and Hyderabad: Both these markets are in a productive spot as they are competently priced with zilch investor participation with no abrupt rise in prices or tendency of price rising, hence here is no asset bubble in the market.
Not all the markets across the cities in the country are affected by asset price bubble and markets which are not influence by asset price bubble doesn't mean that they are performing well but the fact is they have not attracted a great deal of investment.
In order to support the real estate sector, which is seeing more demand for affordable housing from buyers and investors with liquidity crisis, the government has taken many measures to impart funds into the sector. If ever a situation comes where more inflow of money is due to more FDIs or other alternative ways, then it means correction is delayed and the market has become ineffective. And when the sector fails to attract that money, then a sharp correction will be infused and affordability will be continued.
Another major issue in India is that the number of financial institutions that lend to the realty sector has increased. According to a recent data by RBI shows that the total exposure of banks to the sector has raised to 17.3 percent accounting to Rs. 9.33 lakh crore in the end of FY March 2013. The reason behind the increase in the expansion is due to the increasing prices in the tier I and some of the tier II cities in 2012-2013. The most worrisome fact is that the increased exposure to the realty sector is followed by the increase of non-performing assets (NPAs). Hence, a correction is anticipated to lead to reduced value of bank indemnities, more NPAs, which will ultimately lead to anatural correction in the economy.
Any asset sectors along with the realty sector cannot remain extravagant for an indeterminate period. AT some instance, the asset bubble will expand and a sudden drop will affect the financial system and the economy very badly. Hence, a slowly decreasing bubble with a price correction is a must and 2014 is likely to be a right time for that.
For more real estate news and article visit Property Reviews and Ratings official website.
The first and foremost question that arises while looking at the real estate sector in the coming year is ‘would the real estate bubble expand further or would it burst?
While, taking a look at the real estate in 2013, it is observed that the sector was stalled with the existing challenges such as restrained sales, increased number of unsold inventories and builders facing bankruptcy. If these issues continue in the coming year, then definitely the situation in the real estate sector will become worse. Since, the real estate market doesn't follow any fixed method; hence it is very difficult to predict anything about the sector in India. Though, many challenges like the political volatility, liquidity issues, increasing interest rates and the consumer sentiments are likely to stop the bubble of the sector or may burst it, the only positive note in these challenges is the sales factor which is slow but has not stopped.
As, the country's economy is under pressure, the real estate market has become unpredictable for quite some time. The realty prices are also rising and falling in an exceptional way dissimilar to the income levels, which are not rising. Since, the sector is largely capital-driven, the increase in price is generally conjectural. Undoubtedly, it is a known factor that the low interest rates approach by the central banks is cause for real estate bubble in the advanced world. With the foreign investors looking for other investment opportunities, the surplus money has also burst into the real estate markets of emerging economies.
To understand the conception of the real estate asset bubble, let us take consider significant markets across various cities in the country.
The MMR (Mumbai Metropolitan Region) Market: The annual price growth post the 2008 collapsed and the MMR markets observed around 48 percent of considerable money and in the second quarter of the FY 2010-11 the MMR markets saw considerable money of 54 percent and later the marker bubble started decreasing.
Due to high price levels and decline sales, the MMR market platform was not productive and also the cash inflow reduced. Though, the rise in property prices was fairly slow, but the pace of yieldwas still slow.
NCR (National Capital Region, which includes New Delhi): NCR Market is considered as investor-driven market. Property prices raised post FY 2010-11 and remains the same even today. The market witnessed a margin of 27 percent year-on-year in the second quarter of FY 2012-13 and the growth rate has started to cease. The secondary market has already seen price correction. It looks like the MMR and NCR markets in the stage of bursting. With the unsold stock piling in these markets, changes in prices might soon begin to tip off.
Bangalore and Pune: Being aware of situation in NCR and MMR markets, investors turned towards IT hubs, like Bangalore and Pune in FY 2009-10. The markets in these cities become favorable to investors and witness enormous inflow of funds. These cities saw a price rise by 20 percent in the FY 2012-13 when the IT sector subdued and this is where the problems started.
These two cities witnessed huge inflow of money and these markets were flooded with FDI and PE funds that led to a gush in the price levels that made it as a hypothetical investor-driven market. After a surge in price the sales become to decline and in order to boost the sales price correction would start in the second or their quarter.
Chennai: Chennai City is considered as one of the best performing city currently, but it has its own flaws like inventory that are still unsold over months' and the prices increase in the last couple of quarters. But, price correction in the secondary market has already begun past two quartersin Chennai.
Kolkata and Hyderabad: Both these markets are in a productive spot as they are competently priced with zilch investor participation with no abrupt rise in prices or tendency of price rising, hence here is no asset bubble in the market.
Not all the markets across the cities in the country are affected by asset price bubble and markets which are not influence by asset price bubble doesn't mean that they are performing well but the fact is they have not attracted a great deal of investment.
In order to support the real estate sector, which is seeing more demand for affordable housing from buyers and investors with liquidity crisis, the government has taken many measures to impart funds into the sector. If ever a situation comes where more inflow of money is due to more FDIs or other alternative ways, then it means correction is delayed and the market has become ineffective. And when the sector fails to attract that money, then a sharp correction will be infused and affordability will be continued.
Another major issue in India is that the number of financial institutions that lend to the realty sector has increased. According to a recent data by RBI shows that the total exposure of banks to the sector has raised to 17.3 percent accounting to Rs. 9.33 lakh crore in the end of FY March 2013. The reason behind the increase in the expansion is due to the increasing prices in the tier I and some of the tier II cities in 2012-2013. The most worrisome fact is that the increased exposure to the realty sector is followed by the increase of non-performing assets (NPAs). Hence, a correction is anticipated to lead to reduced value of bank indemnities, more NPAs, which will ultimately lead to anatural correction in the economy.
Any asset sectors along with the realty sector cannot remain extravagant for an indeterminate period. AT some instance, the asset bubble will expand and a sudden drop will affect the financial system and the economy very badly. Hence, a slowly decreasing bubble with a price correction is a must and 2014 is likely to be a right time for that.
For more real estate news and article visit Property Reviews and Ratings official website.
Source...