Magnitude of the problemReal estate directly accounts for 7.3% of India's GDP. Other background linkages in terms of sectors usage of iron, steel, cement etc., and forward linkages (travel) to other sectors impacts an estimated 14% of GDP. Thus the total impact to India's GDP on account of the real estate sector is 21%.
Understanding the movement of macro economic factors
The Indian property market witnessed a prolonged trough following a bust in 1996. Residential real estate prices which had seen an increase of an average 70% cumulatively in the three years preceding the 1996 bust, fell 40% in the three years after 1996.The property market bust was accompanied by a period of relatively lower economic growth. GDP growth which had averaged 6.8% in the four year prior to the bust fell to 5.4% on average in the four years after it. The chart above shows GDP, private consumptions and investment in the given period. Can we see a similar pattern in the current scenario?
Looking into the movement of real (inflation stripped) realty prices
From the chart alongside we see that property prices in real terms in Mumbai and Chennai have not surpassed their 1996 levels. 
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2 comments:
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