Prices went up due to black money in Real Estate because of the following reasons. 1) Elimination of Black Money from Stock Market. 2) Banks replaced private money lenders. Private money lenders don't know where to hide their black money. 3) NRI's sending lots of money to India. 4) Banks agreesively lending money for house buying. People are buying properties even when they don't have the money. 5) Abundant high paid jobs in sectors like IT. 6) Requirement of a PAN number to deposit money (over 50,000) in bank accounts.
Most of these things happened in less than past 10 years. This is just a one time thing.
Because of this comman men is suffering a lot. It will not continue like this forever. Initially prices will stabilize for a while and then slowly start falling down. Once this happens people get into panic mode. It will not be a surprise if we see price correction by more than 50%.
Comman Man will continue to suffer until govt eliminates black money in the real estate. Eliminating the black money will bring healthy practices in the real estate sector.
The only way to eliminate black money in real estate is by forcing all the real estate deals (especially in big cities) through auctioning process.
Current Bangalore/Chennai real estate prices are higher than Los Angeles real estate price. Either USA real estate prices are undervalued or Indian real estate prices are overvalued. I don't know which one is true.
But I don't think real estate market would drop big. May be 20% correction. And 3-5% year over price appreciation after that.
The fascination with real estate particularly the dizzing rise of property rates has been a dominant theme in the Indian realty market. Property prices have touched dizzying heights and people have realized tremendous profits both cashed & latent. What needs to be asked is what is driving the realty market. Ofcourse the answer is simple..its demand. Now dig deeper .. where is the demand coming from? The demand is clearly in the top of the housing need domain. The demand is primarily being fuelled by second & third purchases. It is being aggravated by dollar power (paradoxically dollar is being weakened, however still carries some clout). NRIs investing in India for better returns. The rise continues, the speculation intensifies. .. where does it leave the common Indian?
The questions that need to be asked are 1. What is the increase in the % of Indians having standard owned housing? 2. How is the speculation in housing real estate discouraged.
What needs to be done 1. Substantial incentivization for 1st purchase of house of value < Rs 50 lacs. May the to the extent of entire refund of interest component as IT discount. 2. Second purchases to get no incentive. Channel the savings to provide affordable housing to people below the income tax bracket. 3. Surcharge tax of 15 - 20% on dollar income fuelled housing purchase. If 50% of the income in the last 10 years have been in forex then this should be applicable. To be used to offset expense in case 1
