2011 was quite a year for the Indian property market. Myriad factors pulled the market in different directions. We present two sets of competing factors that affected the real estate market.  

Domestic factors (Mostly supply side):

• Input prices have increased (Iron, cement etc.)
• Cost of financing (thanks to 13 RBI rate hikes since March 2010)
• Rising Labor cost  

While these supply related factors are putting upward pressure on the property prices, the following Demand factors have cooled down the housing marketing in 2011.

• Euro crisis and loss of confidence in emerging market as a whole
• FII investment withdrawal from the Indian real estate and stock market
• Slowing down of the economy
• Rupee depreciation and sustained higher inflation has spooked the global investment community  

The net impacts of these factors coupled with higher inventory buildup in key markets like Mumbai and Delhi caused an overall net correction during the last quarter of 2011, even though there were pockets of exceptions to this rule.


Outlook for 2012:

We are at cross roads at this time and the improvement in the property market sentiment will depend on several factors. Weighing the pros and cons we have reasons to be cautiously optimistic.  

Factors favoring a rebound:

• Continuing per- capita income growth and population growth will have a natural positive impact on the real estate market
• While the top property markets are overheated , thegrowth in smaller cities and metro suburbs have tremendous potential for further growth
• Ongoing migration from rural to urban areas is expected to create new home buyers
• Growing trend towards creation of new families by younger generation (living away from the parents) will naturally add to the demand for new dwellings
• RBI has taken an aggressive anti-inflationary stance in last one and half years and there are helpful indications that the inflation is coming under control. It is more likely that RBI will reduce interest rate during the second half the year benefiting the housing market with lower borrowing cost.
• Robust GDP growth rateand greater overall demand for real estate  

Factor against a robust rebound:

• Impending eurozone crisis
• Sluggish global recovery and overall uncertainties
• Continued weakness of rupee
• Disturbing trend in oil prices

In summary, while a recovery is imminent it is by no means guaranteed. Keep your fingers crossed and watch the market movement closely.