Read this article in ET on Home Loan market in India. Things are pretty bad. Home loans dropped by 30% over a year. Interest rates soared by about 300 basis points. Thats catastrophic. But we aren't calling this a crises yet. Quite ?Unlike US. Why? I think the reasons are as follows.
- Prices have help up offsetting any panic situation.
- The maximum tenure in India for a housing loan is 20 years which got adjusted upwards upto 25 years easing Increase in EMI due to interest rate increase
- There are no teaser rates in India like in US that reset from 4% to 8% after couple of years. Combined with growing salaries, that ensures that every passing year ppl are financially better protected against EMI/interest rate hikes
- The down-payments are higher in India than in US. This gets higher commitment from the buyer
- Salaries in India are still growing by 15% or so every year, allowing ppl to adjust to higher EMI better than US where incomes are more or less static.
- Indians lead a less leveraged lives than US allowing them a better chance to adjust to vagaries of life.
In the end, its the conservatism of Banks when lending and growing economy that have ensured the situation has not gotten out of hand.
Did I miss anything?
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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. 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. For more view- realtydigest.blogspot.com
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