Housing Sector Crisis And Beyond

While demand has picked up, realty prices are not rising fast enough compared to other investment instruments, leaving both investors and homebuyers wary

- Vishav

Housing, the sector that brought even the most powerful nation in the world – the United States of America – down to its knees, has been going through a crisis of its own in India. The world is still grappling with the aftershocks of the global recession of 2008, the man-made calamity that was triggered by the massive mismanagement of the booming housing sector in the US. It took years of reform measures and fiscal packages for the US economy to get back on track. Cut to the present, and to the other side of the globe, housing prices stagnated and fell in India, inventory went unsold for years, buyers are still in scarcity and the sector has been facing a liquidity crisis like never before. There are words of reassurance surfacing now with several industry experts pointing towards signs of revival. But with over six lakh units of unsold inventory still piled up in just the top seven cities, can we say the crisis is over?

India’s real estate sector has been in a limbo for a long time. The seeds of the crisis were, perhaps, sown along with the 2008 downturn. The bursting of the housing bubble in the US made investors realise that the exponential growth of housing prices cannot continue indefinitely. This loss in confidence made investors wary of investing in real estate projects, which first led to subdued returns on investment, followed by stagnation and then correction in real estate prices.

With house prices not rising fast enough compared to other investment instruments, and in fact falling over time, investors, as well as homebuyers, became cautious of buying homes and the crisis just snowballed from there. It got worse when builders could not complete their projects on time. After all, who would want to invest in homes when there is no guarantee that they would get the possession even 10 years after making the investment. This is exactly what happened in India.