Nevares48
Junior Member
Registered: Jan 2009
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Real Estate Bubble
It is argued among many that the current realty market is not a bubble; however, the recent rise in real estate residential market is a bubble for a variety of reasons.
In a city like Bangalore, Pune or Cochin the bubble may have begun, may be at the middle or it may be about to burst - this seems unlikely in the near future, but a bubble nevertheless.
Unlike a stock market where it takes all kind to make a market so to say, a housing market is in the physical world. Most people own a house or want to own a house rather than live in a rented property. People who own more than one house usually give one away for rent. Then there are other people, who own land/property hereditarily.
A bubble is set in motion, when people in the hope of making a quick buck, book flats and apartments, sell them when the prices move up and then move onto another property. In short, they play the market. When a few people do it, it does not matter however, when many indulge in it, it sets the ball in motion. As a speculator, all it takes to buy land is a booking amount, mostly less than a lakh. Add a booming stock market, cheap loans and the cauldron begins to simmer, nay boil and we have a bubble in the making.
A standard argument trotted out for high prices in Cochin is that in a city like Bangalore prices have risen to 2500 – 3000 per sq ft in most locations. Therefore, in Cochin, prices are still low by that standard for the average price of a apartment would still be in the low 1800 - 2000 per sq ft. Hence, the average Cohinite would feel that the rate here is low as would the builder justifying his price. However, in terms of the facilities offered, would a 2000 per sq ft location in Cochin offer as much as a similar priced property in Bangalore? Most unlikely. In Bangalore properties cost about 2000 per sq ft and as far as quality of living goes, they are far better than a place (in terms of access to medical facilities, public transport, reliability of power and water supply, security, roads etc.) in Cochin. So using that argument to justify higher prices in Cochin is ridiculous. By that logic, why stop at Bangalore, why not take Mumbai or even Manhattan as a frame of reference. Therefore, prices and their relevance have a frame of reference, which are not the same for two cities.
When the whole business of property becomes one of only buying and selling and not buying and living, it is the start of a bubble.
Yes, the metro might be built, roads may get widened and the power shortages may be overcome. If that is the basis for the hype in prices, will industry wait for all this? Already there are signs of movement of industry to better cities of India and there is no dearth of people in any big city in India. Also remember that much of the IT crowd in Cochin who are the major customers in this real estate party are not locals and ready to relocate if offered a sufficiently good job.
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19-03-2009 05:29
