June 04, 2013
According to the Reserve Bank of India’s House
Price Index, residential property prices in India have grown at a compounded
annual growth rate (CAGR) of 21.4% between the first quarter of 2009 and fourth
quarter of 2012.
Further, there has been a large divergence between growth in metro1 cities (CAGR: 24%) and non-metro2 cities (CAGR: 15%).
Nomura points out that the growing divergence between metro and non-metro prices cannot be solely due to supply factors. It also appears to reflect growing investment demand, which is typically concentrated in large metro cities due to higher liquidity. In contrast, the economic slowdown over the last few years has likely affected real demand in non-metro cities.
Given the elevated house prices, subdued job markets and lower household incomes, real demand should remain subdued.
Consequently, in the absence of real demand, investment demand alone may not be able to sustain the excess return in metro cities.
Further, there has been a large divergence between growth in metro1 cities (CAGR: 24%) and non-metro2 cities (CAGR: 15%).
Nomura points out that the growing divergence between metro and non-metro prices cannot be solely due to supply factors. It also appears to reflect growing investment demand, which is typically concentrated in large metro cities due to higher liquidity. In contrast, the economic slowdown over the last few years has likely affected real demand in non-metro cities.
Given the elevated house prices, subdued job markets and lower household incomes, real demand should remain subdued.
Consequently, in the absence of real demand, investment demand alone may not be able to sustain the excess return in metro cities.
Ref : http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=23583&cat_id=1
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