India’s growth the worst amongst 52 markets globally.
By The American Bazaar Staff
NEW YORK: Are you wondering where to buy that second investment home, figuring out whether to splurge on an apartment in India or the US? Going by the International Monetary Fund (IMF), buying in the US at present will bring good value as real estate prices are showing healthy trends, while India is already in a slump, with indications that the industry is on the verge of a bubble about to pop.
The IMF’s data series on global housing prices shows that among 52 major markets globally, India has performed the worst, while the US is only behind China and Brazil in terms of annual growth in the sector.
Reports of Brazil sinking again into recession have surfaced so it remains to be seen if it can maintain that tempo, while China, many economists think, is a boom waiting to go bust as far as real estate is concerned. The US overall, especially amongst the developed economies, is the healthiest and the most stable, according to the IMF report.
The US registered a 6.6% growth in the last quarter of 2013, as compared to the previous year from that period, amongst developed economies, followed by Germany with 5.1% and UK with 3/5% growth.
The hardest hit European nation was Italy, which was reeling at a depreciation of 6.5 percent, with France also in the negative at 1.9 percent. Amongst other developed nations, Japan also had the same figures as France.
Property prices in Greece, Italy, Cyprus, Spain and Portugal are also down, while Ireland, in the doldrums and hit hard by the recession, has jumped back with alacrity, with growth figures of 4.3%.
Of the 52 countries for which data is available, 33 have witnessed increase in prices, while property has become cheaper in 19.
Amongst the BRICS nations, India has fared the worst, with a massive slide of 9.1%, followed by Russia with a negative 5.8% in property prices. South Africa showed a modest increase of 2.7%, while Brazil surged by 7.4% and China by a whopping 9.1%.
A recent report in Design&Trend had said that the IMF is concerned about empty real estate developments in China’s second and third tier cities. Betting on the continued housing boom, developers and lenders have been devoting enormous amounts of money into real estate. The problem is, people aren’t moving into it.
The oversupply problem in second and third tier cities is so bad, the IMF said it could likely derail China’s economy buy a whole percentage point, according to Forbes.
In the year 2000, real estate accounted for around 5% of China’s GDP. By 2012 it rose three times to 15 percent, according to the IMF’s calculations. It certainly did not decline in 2013 and 2014, despite Beijing working overtime in forcing a market correction.
India’s National Housing Bank (NHB) Residex index, however, shows a mixed trend in Q1 2014, with 13 of the 26 cities for which property price data was available witnessing an increase in prices and 13 registering declines, reported The Times of India. Global Property Guide’s analysis of India says that because of high inflation, a comparison of house prices at nominal rates might give a misleading result. At inflation-adjusted rates prices, it says, prices have actually fallen in 21 of these 26 cities.
Even these numbers might not give a real picture of India’s highly unregulated property market and the problem might be much bigger. According to Global Real Estate Transparency Index-2014, a ‘fairness in property transactions’ ranking complied by a US based real-estate consultancy, India’s property market falls under the semi-transparent category.
Among 102 major real estate markets ranked by the consultancy, India’s tier-1 cities’ property market is ranked 40th while tier-2 and tier-3 markets are 42nd and 50th respectively in the world. All of them are labeled semi-transparent.
Real Estate Weekly reported that the spurt in real estate in the US is also being spurred by the spurt in foreign direct investment (FDI) in U.S. commercial real estate, which achieved record numbers and big headlines. Chinese companies alone were reported to have invested $14 billion in the U.S. last year, more than double their total in 2012.
And that it seems were underreported numbers.
The report said the actual amount of foreign capital pouring into U. S. real estate is much more. Data companies such as Real Capital Analytics look primarily at deed transfers to determine transfers to foreign investors, and therefore typically miss the substantial investments by foreign investors who partner with domestic operators.
The report said an increasing number of U.S. real estate companies such as Blackstone, Tishman Speyer, Brookfield and General Growth Properties are sending executives on frequent trips overseas – from Europe to the Middle East to Asia – in an attempt to woo potential foreign investors into becoming limited real estate partners on various projects in the United States. Significant foreign resources are being quietly invested in domestic asset and property managers as well.