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The housing boom is creating multi millionaires. It has become a wealth machine for the middle and the upper segment of the society. A school of thought says that this trend of double digit returns on real estate would continue, whereas others argue that the rise in prices is a housing bubble and it would not take long for this bubble to burst and the prices to slash remarkably.
Although it has been speculated since a long time now that the real estate bubble would burst, nothing has happened till now. This shows that the increment in prices was more than just a bubble and there were indeed substantial reasons for the rise. Some of them which I could find are:-
Income - There has been a substantial rise in income levels, which has led to creation of demand of property.
Investment - The rich and the middle class has doubled in 5 years. With this substantial rise in numbers and the fact that real estate is one of the safest investments today, the demand is very strong.
Loan - The access to home loan has softened to a great extent. It has become cheaper and more accessible.
NRI Money - With huge NRI money being pumped into real estate, the demand side is very positive and hence a constant growth.
EMI - Simple calculations show that 60% of the EMI (equated monthly installment) is taken care of by the savings in rent and tax. This makes taking loans to invest even more lucrative.
What Lies in Future
The demand for residential property is still strong across the country. If we look at the prices a decade back, they were much less than what they should have been. The rise has started only after 2003, so it would be wrong to say the current run to be a bull run.
In short term (three years), prices should stabilize in metro markets, except kolkata where they should further rise (mainly because the comparative rise in prices there has been bleak). The number of buyers has come down because of anticipated correction in prices. The demand for housing though is still strong.
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* Contributed by: -
Shishir Narula,
MIB, Batch of 2005-07,
IMT, Ghaziabad.
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