Real Estate Boom in India - Will it continue?

Real estate around the world has been booming but in India it has reached dizzy heights. Recently, I read a report that Mumbai's real estate prices are higher than New york's Manhattan .

The Reasons for India's Real Estate Boom

1. India's real estate market is being driven by foreign investors from Middle East , US and the UK who have driven prices up in both the commercial and the residential sector. These investors see opportunity in India's growing middle class and their potential in the future to create housing demand.
   
2. Liberalization of the lending laws and a macro environment of global liquidity has resulted in easy credit. This scenario has been compounded with a number of foreign multinational banks willing to provide cheap credit .
3. A Growing middle class with high disposable income. Salaries have been growing at almost 12-15% per annum.
4. A booming stock market in the last 4 years has resulted in plenty of wealth creation.
   
5. A low inflationary global economy has resulted in a low interest rate environment.

Changes in the Macro economic environment

1. A global liquidity crisis has forced banks in the US to tighten credit for borrowers. This is resulting in real estate prices to fall in the US. If the credit worsens some of the multinational banks in India may need to tighten credit policies in India as well.
2. The prices have reached levels where it is practically unaffordable for the common man to buy any property in decent localities. Although wages have considerably increased, real estate prices are almost out of reach now for the common man in India.
   
3. Real estate prices are being driven up by speculators, foreign investors and business men who are buying houses purely for investment and not to reside in them.
4. Inflationary indicators are moving up showing signs of a recession in the US or at least slow GDP growth in year 2008. A slowing down of US economy will impact the exports of all the developing countries.
   
5. The strengthening of the rupee is beginning to hurt exporters in India. If the rupee strengthens further it has a potential to trigger a slide in the Indian stock market.
   
6. The Reserve Bank of India is taking steps to curb speculation in the Indian Real Estate Market.

A real estate market is never as transparent as the stock market and any such predictions of booms or busts are only speculatory in nature. However, the macro economic indicators are pointing to a change and the year 2008 will probably make it clear on whether these prices are sustainable.