Indian Real Estate Bubble – Will it ever burst?

Most of the people are of the view that in India real estate prices will never come down due to a number of reasons including demography, the shift of population from villages to cites, increase in earnings, economy growth and the biggest reason that lot of black money that is generated through corruption is finding its way in Real Estate. So people who don’t own property are asking out of frustration that “will the Indian real estate bubble ever burst?” – “will we be ever able to afford a decent property for our family?”.  OR they should take a plunge at whatever rate they are getting? Let’s try to touch few related issues…

This is just the first in a series of articles – the next post will talk about the affordability of a property.

Real Estate Bubble

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My friend bought some plots in 2005 at Rs 1800 per square yard sold it in 2011 at Rs 13000 per square yard. From sale proceeds, he bought another plot at Rs 6000 per square yard & in less than 2 years price in that area is Rs 15000 per square yard. It means in 6-7 years his money has grown 16-17 times or 55-60% CAGR. Do you think he is a genius? YES, if I don’t share this story… One of my clients bought some property for Rs 25X & now it is valued 300X in around 3 years so 12 times or 120% CAGR. So do you think he is a genius? Yes if I don’t share this story… one of my relatives bought some agricultural land for 7X and now it is quoted at 100x in less than 2 years so 14 times or more than 250% CAGR.

Bull Market Vs Genius

You must be listening to similar stories from your friends, relatives & property experts on media. But the question still is – are they genius? Maybe…. It’s important to understand that everyone makes money in a bull run if he participates in that asset class – my neighbor told me that value of my house has tripped in the last 4 years. So one should remember that it’s because of the bull market they are making money & price increase should not make them insane. Something similar happened with equity investors in 2007.

But in all the above examples, people have started feeling that they know what will happen next & which makes me worried. A friend is saying soon one new road will be connected to that colony & price will be Rs 20000 per square yard, the client is saying when I can earn 100% from property why should I continue my business and relative has already converted all his financial savings in real estate & now planning to take a loan to buy more. Again the question is – are they genius? The answer is NO….

Predicting future price

Some Indian real estate reports recently said “The real estate sector will continue to remain an attractive investment destination with the possibility of prices in residential areas appreciating by 91 to 145 percent in select cities over the next five years.”

Their predictability of price reminds me of various reports published in Dec 2007 “close to budget SENSEX will be 25000”. OR dialogue from movie BORDER – Pakistani soldier after arrest “humain to yah bataya gaya tha subah ka nashta Jaisalmer main, lunch Jodhpur main & dinner Delhi main hoga” 🙂

Indian Real Estate Bubble

So should I want to say Real Estate price increase is actually a bubble? And if it’s a bubble – Warren Buffett said “For every bubble, a pin awaits”. No because I can’t predict anything & second is related to size of bubble which you can easily understand from Carl Richard’s image.

real estate bubble india

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He said “The supposed ability to spot bubbles is just another way of talking about market timing. Market timing, while not impossible, has certainly proven to be highly improbable.

One of the big problems with some of the recent bubble spotting methods is that they work perfectly, just so long as you’re looking backwards. Many of these techniques are based on extensive research that relies heavily on back-tested models.”

But someone has tried to predict the Indian Property Bubble – from Wikipedia “Economists have expressed the opinion that the property market in Indian cities is in bubble-state and is expected to burst by November 2014.”

Another Story “India’s property prices- now falling, in real terms”

Recently, Indian property price increases have slowed sharply. Of the 15 major Indian cities covered by the NHB Residex, nominal house prices rose in 9 cities and fell in 6 cities during the year to end-June 2012. However, when adjusted for inflation, house prices fell in more cities (11 cities) than rose (4 cities).

Indian Real Estate Bubble Will it ever burst

This means that every property or real estate piece does not grow at the phenomenal rate, if you see in Mumbai & Bengaluru the prices have almost stabilized. And “stabilization” for real estate developer means a recession because he is not making more number of deals. Also an indicator to check is demand vs supply phenomenon in the city. If a city is already flooded with projects in city center vicinity, why will someone plan to live in suburbs? So if demand is met, the oversupply will crash the price. Just read somewhere that 65% of the properties in Delhi NCR & 35% properties in Mumbai are in hands of speculators. Does that indicate something – no because no one can predict size of bubble. (even if its there) Check real estate bubble 2021 burst of US & Japan.

Indian Real Estate Bubble

Manshu shared his views on Onemint “Thoughts on Indian Real Estate Bubble”  – sometime back he also contributed a guest post on TFL “4 Lessons from real estate crash in US”

Big Myth: In India Property Price will never come down – will discuss this in next post.

If you have any questions or points add them in the comments – I will try to cover your points or concerns in the next post.

Real Estate Bubble


  1. Please write about government active support in propping up the bubble.

    RBI’s role in proppping up the bubble.

  2. i think in your article you said that the price is higher because of black money and it is true, and everyone know it. then why. govt don’t take any action to stop this.

  3. It is true and nice article. I would like to know here that how developers and bank in association with those developers play important role in inflating prices and deal value. Even though there is stagnant demand, they just show huge demand and inflate price so new buyer with lack of proper knowledge gets drags into the deal. Once deal is done its now become base to new price increase. It also set an example for new buyer with lack of knowledge. This is also one of the reason of bubble.

    • Hi Amit,
      You rightly said “Once deal is done its now become base to new price increase” which will hold true in downhill – hopefully….

  4. It’s difficult to predict how big a bubble this is or whether it is really a bubble or not but the fact remains that real estate prices have shot through the roof and houses are becoming less and less affordable by the day. That said, if you are planning to buy a house for living, it doesn’t matter whether the price appreciates or depreciates since all of this is notional. You are definitely not going to sell the house you are living in (unless you are planning to switch to another one), so why bother about the ups and downs. Buy whatever / wherever you can afford. Having a smaller roof of your own above your head is much better than having no roof at all.
    Investment in property is a separate issue altogether and I won’t be able to comment on it since it needs expertise, information and loads of luck. For those who invested years ago, lucky you. For those planning to invest now, all the best.

    • Hi Pravin,
      I agree with this “if you are planning to buy a house for living, it doesn’t matter whether the price appreciates or depreciates since all of this is notional.” But affordability is very subjective if people don’t understand its impact on overall financial situation – will try to touch this in next post.

      • The topic of Bubble bust of lowering the prices why would anyone sell below their purchase price of making cost. Projects are created with commercial loan and there are promoter who would take up project finding it a premium profits bays. When they estimate the project and at the time of completion there is a vast difference due to inflation in resources and other faculty which is a direct hit to the CP of the property. Besides these there are huge cost for retention and marketing which the buyer has to foot at that particular Time and place.
        Profit made on every flat will determine the projects survival, Profitability and viability of the projects.
        With the improved travel and infrastructure the prices will be reduces drastically.
        Socially high value property is niche property and will always demand more then the current market price.
        General public or the working class will take up habitation in lesser populated areas to meet their budget. There is a home for every family in the Metro, accommodation for SSC failed and MBA alike.
        Facility and comfort will definitely differ.
        Why speculate about the prices of housing, when someone is really not going to buy were it is affordable. He will find fresh reason to postpone their decision to Buy a House.

  5. Hi Hemant,

    A pretty tantalizing start to the series on Real Estate – keenly looking forward to all the articles.

    You will probably cover these points anyway in your next article, but a couple of questions nevertheless-

    1) Many developers have bought land at exhorbitant prices especially in Mumbai and other metros. Does it not mean that a minimum support price HAS to be acheived ?

    2) There has been an increasing tendency to have a mix of residential and commercial properties in a complex. What, generally, is the impact of these commercial properties ( mall or at least a super-mart, offices, shops) on the residential prices ? Do they increase the price of residential units (as they offer greater convenience) or do they happen to subsidize the prices ?

    3) If the economy is in recession or heading toward it, prices should drop. However, in recession interest rates drop as well. So, does the fall in interest on mortgage loans tend to support the prices (if not prop them back up again) ?

    4) How does Rupee volatility (vs foregin currencies) impact the real estate market ? Is the investment by NRIs in real estate a major or a minor contributor in the overall scheme of things ? If significant, has there been a study whether it impacts a select cluster …or the market in general across all types of residential units ?


    • Thanks YK
      Will try to cover few points in next post…
      There is no doubt that NRIs are impacting the price as there is one way traffic from that side + they are not occupying it & most of it is for investment purpose.
      Lot of NRIs are also taking loans in their resident countries & buying properties in India 🙁

    • I heard that Bubble In Equity could be seen when every paan waala starts talking about stock market.
      And in the similar way real estate bubble is when every one including Peon starts acting like a Real Estate Agent.

  6. One of the charts in your article shows 3 cities that had positive growth in terms of nominal & real rate in Q2 2012. Firstly, can you pls differentiate between nominal & real? Secondly, does it indicate that the positive trend will remain intact going ahead for few years due to any peculiar situations in the cities?

    • Hi Kaustubh,
      Nominal minus inflation is Real – it doesn’t indicate anything. There is only one pattern seen in market – that there is no pattern.

    • Hi Sunil,
      I will not say it is a bubble or not but people are getting desperate to buy – they are feeling that they have missed the buy. They feel that if they don’t buy today they will never be able to afford it.

  7. I would like to inform you that many builders, contractors & developers are in financial crises. They want to sale them property in market as market price, but they not find real users, They find only Investor & always Investor purchase property from developers & builders less then market price (Minimum 20% less of market price) so, in next some month builders & developers will sell them property to real users in discount. So, Market will down within 2 months, because Year ending “March” will come.

  8. That’s a superb analysis. But personally I feel that this will not happen. Definitely as days passes things will go in a better way. Technology and opportunity will come more and more in India. Which will further make people more capable of earn more. India is the next super power. So might be the rate of increase can get slower, but demand will be always at the higher side only….

    • Hi Santanu,
      Problem is not with increase in price – it is with pace & consistency. In 2007 everyone was talking about India Growth Story & prices zoomed ahead of valuation.

  9. Post-independence legacy of parasitic politico ogres, clans and individual alike have displayed uncanny Houdini abilities to remain the unbridled and uncuffed, blatant annihilators of the economy.
    With a zillion Gods in our midst, unification to defeat a singular Satanic breed is not our priority; long lives the Czars and their cronies who satiate voracious, perpetually escalating appetites on all things good at the cost of underprivileged, gullible and assiduous subjects in plain view.
    So NO, the perceived real estate bubble will not burst till we the people conjure the courage to wield the pin of unbiased basic moral values in our daily lives and say no to corruption.

    • Hi Saumil,
      Corruption is not a 5 year old story – we are facing this since independence. Even in past there were correction/crash in real estate price but when this will happen is million dollar question. Will talk about same in next post.

  10. Hi !
    This is a great informative article which holds true in most Economies. But there are a few reasons I can think of in India that this model will not work.
    1. Black money is one of the major reasons in these deals. Almost 60% of what is paid is black money by the investors and banks only finance it about 85% of balance 40%. So it is never advisable to let the bank foreclose on the non payment of mortgages as what happened in USA when people just walked out of their homes and let banks take over.
    2. Most of the developers now a days are partenering with the land owners instead of buying land upfront thus reducing their risks. Land owners have been sitting on the land for long time and they are under no stress to sell it just because the prices are not going up. They have been made to believe that the notional value of their property is much higher. This is done by developers so they can have a better bargain.
    3. The cost of construction is not going down and anything under 2000 per sq ft still looks lucrative to the investor.
    4. Property prices are in a bubble no doubt but whoever owns these land banks seem in no hurry to sell as it is their paid up assets and they are not incurring huge costs in these.
    5. We Indians by nature are emotional people and attach a great significance to owning a home rather than paying rent and live in a better accommodation and life style. We still consider it as the safest investment.

    These are a few points which I think are relevant when studying the real estate market in India as compared to other places

    • Thanks Bhuwan for sharing your views – you rightly touched our love for physical assets like real estate & gold 🙂

  11. hi hemant.
    i would like to say that the bubble size will increase day by day . the prices are going to increase further as the demant increases. . the bubble will not burs tin the next 5 to 10 years.

  12. Nice post. Real estate prices-both capital values and rental values in metro prices have gone through the roof. Tough times for the common man..he can neither afford to invest in a house nor stay in a rented one paying the huge monthly rents. The Indian Govt. offers attractive tax rebates and incentives for investment in house property..when the normal middle class person cant even dream of buying one at the given prices !

  13. Hi Hemant , again this is the great post,
    As you said in the post that ” someone has tried to predict Indian Property Bubble – from Wikipedia “Economists have expressed opinion that the property market in Indian cities is in bubble-state and is expected to burst by November 2014.””

    In that case what will be the impact on the stock market.

    I dont know whether i am right or worng but in that case all banks will be in trouble as they have provided the home loan, so the share prices of these bank will go down–Mutual fund will go down, then what about the investment in MF.

    • Pankaj,

      If you are a medium to long term investor, and investing systematically, then fall in NAV should ne more than welcome, no ?

  14. Every bubble will burst sometime. Bubbles are known since the tulipmania in the Netherlands in the 17-th century. They will return every time.

  15. Irrespective of a bubble, we Indians still are of the opinion that we live eternal so we must have our own land, house etc. But one should remember that at the cost of some materialistic wants we are forgetting the real enjoyment in our lives and pass on the same legacy to our children also.

  16. Investing in Real Estate is considered as one of the safest investment options… But that does not mean that you invest without thinking..

    Between 2003 and 2005, the whole world economy was on a bull run and as a result of which property prices were growing very rapidly… But this Bull Run comes once in a few decades… and that bull run has already gone..

    this is the phase of stability wherein property will grow only when its growth is justified unlike earlier wherein property was growing without any justification…

    So before investing in any property, it is advisable to do a background check of the same..

  17. India’s Real Estate NRI’s & Fii’s Are Pouring Money into Our Real Estate but Till When and How Much?
     This is one of the biggest ironies we have come across so far.
     The economic downturn in the US, Europe and the Gulf debacle – all had only one factor to blame. A bubble in real estate prices and mortgage loans! But it seems the trend is that of greed feeds greed.
     NRIs from the US, Europe and the Gulf wanting to relocate their money to their home-country, as they can’t see future in that country, so they are investing in real estate market in India {DEMAND} is seeing a never-before rally. The dollar-earning NRIs are willing to pay higher than market prices, as they need base in their home town.
     As FII Banks and mortgage lenders are all too willing to help their purchases with attractive interest rates. huge money lending was done from banks in 2000 to 2008 So whatever local and NRIs demand was there was full filled, {BECOUSE OF ALL THIS DEMAND PRICE WAS ROCKET HICKED}
     These funds are therefore feeding an asset bubble in Indian real estate, which was relatively less impacted by the global meltdown. As in India there was actual demand was there till mid of 2008, but now all this demand is full filed.
     Most of it has directly come to real estate. Further, the current tight liquidity situation across US has enticed NRIs to mortgage loans in India.
     We do not see this as a very healthy sign as Indian real estate players and bankers have to be very careful about whether the high prices and risky loans are sustainable.

    • I totally agree with this comment.

      In recent past many “middle-class” young skilled people in IT or finance got opportunity to go abroad and get some handsome money. This new set of people are eager to buy a home of dreams (which matches international standards), which is really fueling the market. The real state mafias are taping these investors. Though the safety, accessibility & infrastructure is far behind in new developing sites. You’re on your own to meet any situation.


  18. One important point missed is the holding capacity of Indian buidlers.

    This is the stark contrasting factor between real estate in any other country and India.

    Builders in India can hold onto a property for longer than anyother country.
    (exception: small proportion of builders who are doing their first/second project)

    Another aspect:
    Buying capacity has increased manifold. Even if “you” dont buy, you cannot stop other people who are buying. They could be doing it as investment whereas you are buying are your first house.

    Black money:
    All the corruption that’s underway in all parts of the country will ensure that properties are built and held indefinitely(atleast longer than any average individual can). Its black money! Politicians & Builders hold hands together to utilise this black money. Do you think they want immediate returns? No. They can afford to reap the returns at their leisure.

    So will the prices keep increasing?

    In 2005, when I was searching for property in Pune, even Rs.800-1000/ sq.ft was expensive in my terms. Because my loan capacity was only 10 lakhs. Now I laugh at myself. But I am sure you cant get such prices anywhere in Tier1-Tier2 cities anymore.

    Certainly, there would be a point of stabilization as it has happened in certain parts of Mumbai. But for other cities, there is still room where properties would be built/developed, waiting to rope in any investor/buyer ready to shell out the money (legitimate or otherwise).

  19. Dated: – 21.12.2012
    Property prices will crash in India All this will happen for Indian economic reasons ???
    Liquidity will be don tighten {sucked}.
    Lot of expenses will be implemented on property to hold for owners.
    Property tax has been increased.
    Vat had been implement on property.
    Rate of interest has been increased it means buyers cannot afford to pay EMI.
    Over 10 lacks of loans higher rate of interest will be charged.
    As per RBI Guide line banks can provide now only 80% of loans on property.
    As per RBI Guide line banks can’t provide loans more than average of last three years IT return.{RBI is protecting banks as they also know property prices will crash}
    It means if someone wants to take loan of Rs 60 lacks his minimum IT return annually should be Rs 20 lack, only then he will be eligible for loan, if his income is more than 20 lacks then why will he be require a loan???
    All frauds of land title, accruement and FSI will come in light, So that people will be afraid to buy a property.
    See My Next Comment

  20. Indian real estate is about to crash for the first time after independence. That day the myth ‘real estate prices always rise’ will break. India will face a bigger crash that that of japan and we too will have a lost decade like them. The day euro collapse, it will result in an immediate chinese and indian real estate market crash. And EURO IS DOOMED.

    • Dated – 15.01.2012
      It details the depths of the crisis the U.S. economy is truly facing, including its massive debt problem, the declining value of its currency, the unemployment crisis, and the housing crisis. It’s a great review of everything that is going very wrong in the U.S. right now.

  21. Aam Aadmi Cannot Buy Property Because He Cannot Afford
    Earlier on 1 lack of loan EMI was average Rs 1000 per month, but now it will be Rs 1500 and he has to take loan 4 to 5 times on same property as its price had jumped, It means his EMI will cost him six time more than earlier existing price.
    Earlier buyers had to invest only 10% of the property amount, Assume if I have bought flat of 1000 sq feet earlier it was of 25 lacks, I have to invest only 2.5 lack and property tax & other charges around 1.25 lack it means my total investment will be 3.75 lack only and EMI 22500,But now same size of flat will cost minimum 1 CR if he will take loan of 60 lacks only its EMI will be 90000 4 times??? And he has to invest his own money 40 lack and hiked property tax & other charges as well as vat also around 8 lack it means his total investment will be 48 lacks. It means his investment will be 12 times???
    And if someone wants a 1000 sq feet flat on rents, He can get a furnished flat with a monthly rent around 30 to 40 thousand only and he doesn’t has to pay any society maintaining charges also, Then why people will buy flats when they can enjoy living at cheap rates on today’s date {Same thing happen in USA}.
    My dear friends same thing happen in USA, But only different is that all the property crash losses in USA was borne by banks as in their country no guaranty is taken, But in India all these losses have to be borne by builders, big & small investors, and anyone who had bought a property recently.
    You can imagine if all world banks were in big losses as the market crashed like anything in 2008, US Government had to take 2.05 trillion US $ guaranty. Now just thing how bad position will be when Indian property will crash just thing if no more liquidity then there is no value and no buyers. {only suppliers}

  22. Hi,

    that was truly an “eye opening” article.
    I too seriously believe that “sooner than later” there will be a big property crash.
    Maybe in this year itself, for all you know.

  23. Price will not going to be crash in India it will be even go up by 200% to 400% in next 3 to 4 years so don’t miss the train otherwise it will be on next station

  24. Gre8 post!!! I’m in USA and I have never seen real estate transaction taking place like I saw in India, I was in ahmedabad, India in may 2012 and was looking for a big house not a square 30×30 feet house. I saw 1 house which had no interest to me because soon as you step in you are in foyer and kitchen and living room. I had 5 cr budget to get best looking house for my family. Now lets get back to point, I asked him how much is sale price , he said 1.3 cr, I asked him how you want the payment. He said we can do all cash. He said we will show 40 lac on transaction only to avoid stamp duty and taxes for both of us. I was amaze to hear how easy it was to avoid large transaction in India with cash. Here in USA, having large cash transaction draws RED flags to revenue department, but in India CASH flows like water. I decided to stay here and raise my kids because rather than me investing my hard earn money in India, we will have better housing and life in usa than in India. I’m thinking about selling all my ancestor’s lands in India while this bubble last. In conclusion, Indian government knows all about Indian real estate market and black money transactions, but not doing anything to control curbing black money flow problems.

  25. Please advise me for LIC’s Health Protection plan.
    My DOB – 01/02/1971
    Objective – Health insurance & tax benifit on 80D
    plaese also let me know that 80 D benifit will be available if TDC come.

  26. Respected Mr.Heman Sir, My Financial lessons guru, thank you for the great doubt that i had regarding Real Estate doubts, and its great eye opening article.

    thank you whole hearty Sir. Sir, If i am in your State, i might definitely be working with you.
    Thanks once again.

  27. A real business men is who can sell glares in town of blind people. If you know how to sell your property u can make profit. I don’t think property rates will depreciate in a city like Delhi.

  28. Siddharth,
    According to latest CBRE reports, prices in Delhi have already fallen, including South Delhi & will continue to fall in coming time as well. My cousin stays in Gurgaon & market there, especially resale have seen price drops of atleast 15%. I stay in Mumbai at Prabhadevi and what I see around is hardly any flats sales. There is a flat in our building whose price was decreased by 13% by owner in last 1 month, but still no buyers. Infact, I don’t even see real estate agents coming in building like they used to about 6 months back.

    @ all,

    Realty prices are going to fall for sure. If you are end user, search for ready possession investor or resales one as they are the first to fall.

  29. If you look at the trends, the Gold and Property started rising after 2005-06. It was the time when the movement against black money in Swiss and other banks started. All those who had their black money in these banks panicked and started withdrawing their money and started looking for some other safe options. What were the options available? Gold or Property. Now that most of them have finished investing, Gold is crashing and property will soon follow.

  30. Dear Hemant,

    Amazing article but this does not seem true at all in a place like Mumbai from where i come. i will show u the price checked and years

    2005 – psf 2,00
    2007 – psf 5,00
    2010 – psf 8,00
    2012 – psf 10,00
    2014 ( Today ) – psf 13,00

    where is the bubble bursting…We are speaking of a cycle of 10 years now and though its said market is crashing when u go to sit across table with builder there is no compromise from their side.

  31. Sorry i dont know how the last 0 got truncated..the prices are

    2005 – psf 2,000
    2007 – psf 5,000
    2010 – psf 8,000
    2012 – psf 10,000
    2014 ( Today ) – psf 13,000

  32. Hi !
    Most interesting to see would be how the bubble will burst.
    Will the builders offer freebees like they are offering now or will
    They start selling on discounts or just the pace of real estate
    Price rise would slow down despite the rise.
    It would be interesting to see will The NEW govt introduce better FSI
    to bring the cost of land in a project down to make housing affordable
    or how the builders and developers would still show higher returns to
    the big investors.
    Anyways interesting times ahead.

  33. It’s been 8 years since this article was written and 4&1/2 since last comment, still waiting for bubble to burst!!

  34. Excellent post. Thanks for sharing the myths on real estate development. This is very informative to know the facts.

  35. Why market is not crashing? from the data, I can see real estate bull run of 30 years.. In reality, 1L property in 1990’s become above 2CR at current rates.. stock market or best company share did not seen such bull run. Who is still holding on realestate? when it will crash?

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