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Runaway economic growth and a literate workforce only go so far: to really win over foreign investors, emerging markets should ideally boast an active real estate market. Indian companies, keen to plug the gap, plan $4bn of property listings in the next four to five months.
There is certainly room for catch-up: Hong Kong and Tokyo each boast more prime office space than all of India. It also has a shortage of some 2m houses. There is scope to redress the balance. Property investment is a corollary of economic growth, outsourcing and deregulation. IT companies and banking back-offices need floorspace, while changes in the rules governing retail, for example, favour more big malls. Meanwhile, relaxation on financing makes it easier to obtain mortgages or bankroll gleaming office towers.
But the central bank’s governor is right to sound a note of caution about spiralling property prices. Housing loans increased by more than 50 per cent in the year to June, while loans for commercial property more than doubled. That is fuelling substantial price rises: prime real estate prices in Delhi and Mumbai, for example, are estimated to be up 40-50 per cent in the past year. Partly reflecting the absence of capital markets participation, banks carry most of the load – and are going to ever further lengths to meet demand. ICICI’s move to raise $1bn worth of yen for domestic lending is a case in point.
Nor is it just banks that should be fretting. Favourable supply/demand dynamics are helping keep real estate prices aloft for now, but the balance will be less lopsided once developers start spending their freshly-raised cash. With inflation hovering above the target rate, there is a distinct possibility of further monetary tightening, which could sour the joys of home ownership for some. It may be a sign of progress, but India’s burgeoning real estate market is not for the faint-hearted.
