Investment Property Bubble in India?

With news out this week that prices for investment property in India have hit record highs in cities like Mumbai there’s talk of a housing price bubble looming in India and the Asia Pacific property markets.

But it could just be that a lack of clarity and transparency in the investment property market in the likes of India and China are actually protecting the real estate markets from going bust.

According to a new report commissioned by the United Nations Economic and Social Commission for Asia and the Pacific the fact that foreign investors other than non-resident Indians are restricted when it comes to direct property market investment activity in India means that a great deal of speculative buying and selling activity is missing from the Indian property market.

The lack of speculative behaviour, where investors borrow to purchase properties purely for income and gains, may actually be protecting India’s property market from bubbling and bursting. 

With speculation in a property market comes more investors purchasing for income and gains rather than for owner occupancy, this creates more action in the real estate market with more property stock changing hands, sometimes this creates inflated market activity which can over inflate prices, over extend the affordability ratio, cut real profit potential and which in the long term can cause a crash and be damaging to a property economy.

China was aware of this fact and took remedial measures last year to calm the speculative nature of its emerging property market.  But quite possibly the lack of transparency in the Chinese property market when it comes to the laws of ownership etc., is keeping this particular booming market in check quite naturally.

Many see the restrictions placed on the foreign ownership of investment property in India as a bad thing – but because the Indian property market is thriving, some would say booming, the amount of property owned for purely speculative investment reasons is below average which means that the growth of the market may well be built on solid foundations. 

Whether 20% quarterly gains in some cities in India are sustainable remains to be seen of course, but currently the majority of property development and market activity is backed by solid investment commitment coming from large international companies who are relocating to India, importing expatriate staff and boosting the local economy.

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