Buying a house in India currently in Tier I or Tier II cities is next to impossible. The Indian real estate has had a dream run since late 2003 and the housing prices have doubled or even tripled in some places.
Just to give you the perspective, I bought my first 2 bedroom 1000 sq. ft apartment in Pune, India back in 2000 . It cost me Rupees 900 per sq.ft ($21 per sq.ft ). The cost of house including registration, stamp duty etc. came upto Rupees 11,50,000. A very big amount for me at that time. I was drawing a pittance salary back then. I had to take a loan. However, I was happy that I was getting a loan at 11.75% which was lot lesser than what was the norm just couple of years earlier (the housing loan rates were touching 15% in late nineties).
By the way, Why am I telling you all this – just to give you a fair idea of real estate market back then and now, along with it, how drastically things have changed for and of Indian consumers.
So I bought the flat after taking a loan of 9 lac rupees at 11.75% interest rate. For most of the Americans, those kind of housing loan interest rates are unheard of, but at the same time the inflation was also high hovering at around 6%. In 2 years since I had bought the flat, the interest rates had fallen to its record low upto 7.5%. But the housing market was yet to really take off. The place where I had bought the flat, the rates had moved to up to around Rs. 1100 per sq.ft, some 20% rise in 2.5 years.
No one had really expected what was to follow. Fast forward December 06, the same flat for which the rate was around 1100 had jumped to a whopping Rs. 3000 per sq feet, the cost if flat had gone up from Rupees 11.5 lakhs to 30 Lakhs. In last six month, it should have moved up even further.
You will hear this story from 90% of the Indian people who have bought houses in last 6 -7 years.
What is the reason for this unprecedented growth in Real estate market?
This phenomenon can be attributed to unprecedented rises in disposable incomes of Indian middle class, sharp increases in global liquidity, Liberal credit policies, and cut throat competition among mortgage houses.However, there are certainly some concerns that the property market has risen too fast in relation to economic fundamentals, which remain robust. The market is actually divided in their opinions on where the Real Estate in India is headed. However, I think that several factors should ensure that property prices continue to grow robustly, assuming that the economy maintains a growth rate of 7% to 9%. These factors include rising incomes and a growing middle class, the nuclearization of families and subsequent drop in family size, increased urbanization (currently 30%), high young population concentration (one in every six people in the world lives in India and average age is 25 years), and greater financial and capital market development, which will boost the housing loan market.
In last 12 months, I have been planning to invest in another property in India. Infact during my visit to India I was actively looking it, but did not buy as I though the market is over heating and the prices should pull back a bit in few months. Nothing of that sort happened. Infact, the property which I was looking at has moved from Rs. 2500 to Rs 3300 per sq. ft in less than 8 months. Even if I would have bought then and sold it now, I stood to make gains in tune of 30%.Is it too late for me now, or should I go ahead and invest. I have not found the answers for this questions.
Would love to hear what the readers think, so here is the poll for today.