Over the last few years India has become one of the economic powerhouses of the world with a roaring economy, buoyant property market and increased wealth for many areas of society. However, the massive surge in property values across India has led to a two tier system of the haves and have-nots which is something heavily associated with India for many years. There is a feeling that the property market in India has reached a level where by first-time buyers have effectively been priced out of the market.
The wealthy elite in India have seen a massive increase in the value of their stock market and property assets which has pushed them to another level financially. Many observers are concerned that the Indian property market is dominated by a small band of wealthy individuals and some believe the long-term future of the Indian property market is actually at stake. So what exactly is going on?
The Indian economy
As we mentioned above, India is now one of the economic powerhouses of the world and on a par with countries such as China which has also seen massive growth of late. Significant overseas investment has seen many of the world’s best-known companies enter the Indian market which has opened up massive opportunities. The population of the country continues to rise and as the average income also picks up there will be more and more opportunities for significant business income streams.
Even though the economy has fallen back in light of the credit crunch and worldwide recession there is no doubt that once the worldwide economic situation is sorted out the Indian economy will soon be back on track. India is a country which has long been associated with a significantly polarised population with millions of people living in slums and millions of people living a life which many can only dream of. Even though the middle classes in India have seen their incomes rise over the last few years many have been left behind in the property market boom.
The price of property in India
Indian property has become something of an asset rather than somewhere to live for many investors. This constant demand for property assets has pushed prices higher and higher over the last few years and further and further away from even the middle-class first-time buyers. During 2008 we have seen luxury home prices fall by 30% and those in the cheaper bracket fall by between 10% and 15% during the year. However, even these significant falls are nowhere near enough to tempt first-time buyers in the market as they are having significant difficulty raising finance.
Many experts believe that a further fall of between 20% and 25% in the cheaper homes market is required before significant numbers of first-time buyers would be able to afford property in India. However, there are hopes that a reduction in prices during 2009 will allow a significant expansion of the property ownership base in the country and give a firm grounding for the future.
As the vast majority of wealth in India was and continues to be concentrated amongst a tiny portion of the overall population, many property developers made the mistake of concentrating on this market and leaving other markets to fend for themselves. A significant shortage of middle-class housing has been identified over the last few months with estimates ranging between a 20 million and 30 million shortage of affordable housing.
A perfect example of the demand for low-cost dwellings occurred in Delhi recently where 5,000 new homes attracted over 800,000 applications. There is no doubt there is still a demand in the lower to middle end of the Indian property market but property developers have had their fingers burned over the last few months and many are still struggling to reposition themselves.
Indian government policy
Like so many of the property developers in India the government has also been guilty of concentrating on the higher end of the market and attracting significantly wealthy individuals and companies to the country. However, they have now realised that this over reliance upon the higher end of the market has left a significant shortfall in the middle and lower class area and appear to be putting plans in place.
State-run banks have been put under pressure to reduce interest rates significantly to increase the flow of liquidity to the mortgage market, to the benefit of many first-time buyers. Smaller cheaper homes could well be the next phase of the Indian property market boom although prices are still falling even though demand is there and shortages have been identified. A more widespread approach to property ownership is needed by the Indian government and many are looking for direction in this area.
Middle-class first-time buyers
While India is a massive country with a population of over 1 billion people it is interesting that estimates suggest 300 million middle-class Indian residents are not in a position to afford their first home. Slowly but surely as property prices fall back down to more affordable levels more and more of the 300 million middle-class Indian population will be drawn into the market and be able to afford properties.
Much of the focus on growth in India has been upon the higher end of the population where riches have exploded over the last few years. However, the future of India seems very much to be within the middle-class to lower-classes of the country as they offer the potential to form a solid base for the property market going forward.
In the good times the focus on the superrich of India has seen many property development companies make significant returns on their investments. However, it was evident from an early stage that this could not carry on forever and once the worldwide recession began to hit home many property developers encountered serious problems. It would appear that property developers in India have learnt their lesson and are now looking to spread the base of property ownership between the various classes and introduce cheaper housing to the country.
The Indian economy is sure to pick up where it left off as and when the worldwide economy picks up and the country is still very much an investment hotspot waiting to happen even though there are risks associated with certain sectors of the population. Overdependence on any one area of the population is very risky and many are hopeful that the authorities and the property development companies have learnt their lesson. For the sale of the Indian property market we can only hope they have!