The real estate boom experienced by India in last couple of years is the highest in the Asia Pacific region when it comes to the growth seen by the stocks of this sector.
As far as house prices are concerned, India stood only second to New Zealand in the region, the International Monetary Fund said in its recently released Regional Economic Outlook for the Asia Pacific region.
According to the IMF, the real estate stock prices in India increased 14 per cent during 1999-2006, while Indonesia saw the second highest growth (10 per cent) during the same period. New Zealand stands first in house prices increase with more than 12 per cent rise whereas Indian house prices increased by more than 10 per cent on an average during 2002-2006.
In comparison, China’s real estate stock prices increased close to 8 per cent and the house prices increased by more than 8 per cent.
The IMF said rapid urbanisation may have contributed to the increase in housing prices both in India and China. “Moreover, given these two countries rapidly expanding economies, foreign demand for housing and commercial space is likely to have ballooned in recent years, as firms establish a presence in these markets.”
“Similarly, speculative capital inflows may have played a part in house price inflation in some Chinese and Indian cities, with these inflows either seeking straight capital gains or, in some cases, using housing as a way to capitalise on expected currency gain,” it added.
Both in India and China, the IMF held, the increase in house prices was uneven and was higher in larger cities like Delhi and Bangalore.
“While prices in China and India may not be growing particularly rapidly on a nationwide basis, a number of large cities in these countries have experienced annual real price increases well in excess of 10 per cent over the past five years,” it said.
The IMF cautions that housing price spike in these countries may not be sustainable for long. “A rapid rise in the ration of housing prices to household income may suggest that housing is becoming less affordable and that, therefore, the gains in housing prices may not prove sustainable.”
(Courtesy: Business Standard)