BIS: India tops in home price rise since 2007

Recent data from the Bank for International Settlements (BIS) shows that India’s residential property prices have risen by a cumulative 72.3% between calendar years 2007 and 2015. This is the highest cumulative growth among a group of 18 major economies.

Brazil ranked No. 2 with 61.3% growth, while Canada, Australia and Germany followed, posting double-digit growth (see chart).

This doesn’t mean, of course, that housing prices have risen continuously, year after year. But it does suggest that home prices continued to go up in India even after the financial crisis. Home prices have also not fallen uniformly across markets in India. Prices have been sticky in the last few years and a time correction has taken place.

In some ways, it is also a reflection of the Indian economy’s relatively resilient performance after the financial crisis. Normally the real estate price bears a correlation with the state of the economy. Take the case of China. BIS data shows a negative 0.13% growth rate during the eight-year period. Russia is the worst performer with -41.47% growth rate.

But then sales figures from Indian developers show lacklustre demand over the last several quarters, especially in the seven top cities in the country.

According to some realty market observers, India has been a laggard in property price adjustment.

The question is: if the rise in housing prices is the highest in India, does that mean we will see a steep correction soon? One reason why prices are holding out in the country amid weak demand is the prevalence of diverse social strata, with varying income and affordability profiles. Mid-segment housing and smaller towns did not suffer the lull in the last few years as much as the top seven cities. The chances are that property prices will languish at current levels and gradually turn upwards.

According to Sandipan Pal, an analyst with Motilal Oswal Financial Services Ltd, a “broad based rise in home prices is some time away and should come after a sales volume recovery, which looks to be 12-18 months away”.

Perhaps one reason why it’s taking so long for the real estate sector to do well is that a price correction, after the excesses of the boom years, hasn’t happened.