According to the author of this article, he states that banks in India played a pivotal role in making sure that real estate prices did not fall. It has been observed that between November 2012 and November 2013, loans given by banks to commercial real estate, had outgrown at a much faster rate than their overall lending. This has been noticed in a given scenario wherein real estate companies have a lot of unsold homes (in other words it is referred to as inventory in technical terms).
It has also been observed that the number of new projects being launched by real estate companies had fell to a large extent. Due to this reason, fresh loans given by banks has actually helped real estate companies pay off their old loans. Moreover, this ensures that they haven’t had to cut prices with an intention to sell their unsold inventory. It has also been noticed that had the situation not arisen wherein bank loans to commercial real estate had not grown as fast as it has now, then the situation would have arisen wherein real estate companies to repay their bank loans would have had to sell off their existing inventory. They would have to cut prices if they wished to do that.
If we take the situation of a three bedroom flat near the Sector 12 metro station in Dwarka, a sub-city of Delhi, the flat had been put on sale for Rs. 25 lakhs nearly 10 years back. Today, the same flat costs around Rs. 2 crore. If we assume that price rises at 14% per year, then it will cost Rs 7.4 crore in 10 year’s time. At a given rate of 22%, it would cost Rs. 14.6 crore. If we consider the price rises at the same rate as they have in the last ten years, then the home would cost around Rs. 16 crore.
It is a known fact as to what occurred in United States. The real estate bubble had peaked in 2006. With regard to that, the prices started falling after the last. For the past 16 months real estate prices as measured by the 20 City S&P/ Case- Shiller Home Price Index, are known to be rising.
If we assess the scenario in Mumbai, we notice that here in this city the prices fell by 50%. It was the last place that one would expect the prices to fall given the fact that the city is surrounded by the sea on three sides and can grow only in one direction. Apart from the price rise, what other reason is propounded from time immemorial is the fact that there is only so much land going around. As a matter of fact, this reason has been cited for more than 100 years now.
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