India?s property markets are on a fast track, driven largely by the rapid expansion of its information technology industry, a retail boom and the simultaneous growth of its middle class. Robust economic growth and low interest rates have revived the demand for property across urban India.

Added to this is the release of large chunks of land for development. If it?s the booming information technology industry that is fuelling the demand in south India, the industry-friendly policies of Himachal Pradesh, Haryana and Punjab are triggering an explosion in the north. In Mumbai it is the release of mill land now available for commercial/residential development.

A flourishing economy, the entry of MNCs and the outsourcing wave have led to greater employment opportunities being created not only in urban areas but also surrounding suburbs and towns. This propels the demand for residential properties, as with business growth comes a spurt of population moving into these cities for employment purposes looking for accommodation in the city. This is leading to rapid urbanisation, which is providing a huge impetus for the development of real estate.

The IT/ITeS sector, along with retail stores, mega shopping malls and multiplexes, have provided scope for present and future development of real estate in not just the metros, but also tier-II cities. This hectic activity in real estate may have led prices to go up much faster, but only in some parts of the country such as Gurgaon, Noida and parts of Mumbai, Pune and Bangalore. In some other parts, the rates are the same as 10 years ago or even lower.

Real estate prices had witnessed a lull between 1995 and 2002 and it is only in recent years that they started moving up. We have seen that the interest in real estate and the corresponding demand is from genuine buyers and not from speculators or investors. Since the demand for housing is from genuine purchasers, there shouldn?t be too much concern of the market heating up.

Besides, the increase in property prices is due to better construction quality and provision of other amenities. The demand for housing has been growing because affordability has improved. Lower interest rates, tax concessions and rising income levels have contributed to the increased demand for housing. There has been a shift in the mindset of customers who were averse to take a loan earlier. Today, the aspirations of the urban middle class are rising with higher disposable incomes and they are eager to own things early. There is a rise in nuclear families and the average age of homebuyers has come down.

Shortage of housing in India is huge and is estimated to be at 19.8 million, the mortgage penetration is only 3% of GDP, which is very low compared to other countries. Adding to this, people are constantly upgrading themselves to a bigger home or a better location and with the influx of population pursuing job opportunities, the housing rent market is also growing. Due to the attractive tax benefits available on home loans, customers with higher incomes are ready to invest in a second home with the purpose of renting it out. Case in point: Bangalore, Pune, pockets of Chennai.

On the other side, in places like Mumbai and certain outskirts of Greater Delhi, where the boom is being driven largely by release of mill land/ agricultural land for development, speculation is mainly on land prices. Whilst developers are purchasing large plots of land at a hiked price in anticipation of demand, they are cutting on their margins while selling developed properties to match up to the existing property prices. The hike is mainly on land prices, and not as much on house prices.

Source : Executive Director, HDFC Ltd