15 per cent decline in property prices in Punjab

It doesn't matter if the real estate bubble bursts. It only matters if your bubble bursts
You probably thought you paid a fair price for your property when you purchased it.
Unless you're a real estate speculator, the reason you bought the property was to live in it or just sell it to make money

Ludhiana, June 27, 2006
Ashok Verma

There is marginal decline in the "artificially inflated" property prices. After the crash of the sensex and the reverse witnessed by gold, there is sign of 15% decline in prices in Jalandhar, Phagwara, Kapurthala, Goraya, Hoshiarpur, Ludhiana and Ropar.

The recent, rapid price increases 125% stem not from a speculative frenzy but from basic economic factors, including low interest rates, strong income growth, NRI investment and black money came out in investment, "The bubble fears are over people paying money for housing today because they're expecting unreasonable (price increases)," said NRI professor and real estate specialist. "Our calculation says that if people are expecting something reasonable, house prices today are justified -- and now looks very risky for investors."

Other markets, where those ratios hover near peak levels, appear more vulnerable to price declines. But other economists say the report paints a too-rosy picture of many markets where investors are flipping homes for a quick profit and boosting prices to record territory.

Property speculation is the hottest topic in India These days, one question is on the tip of everyone's tongue: Is a bubble developing in the real estate market?

Nonprofessional real estate watchers have been arguing about the existence of a housing bubble in recent years, as homeownership rates have soared along with prices and investors have poured tons of money into real estate in high-flying markets. If mortgage interest rates increase, as some economists expects within 6 months or so - prices in these area could decline by as much as 15-30 percent as and investors flee the market. The increased of interest-only loans "means borrowers can't afford to make the same mortgage payments. Strong indications prevail that the property bubble is going to burst soon

So given all those encouraging signs, is it still likely that the real estate market's bubble will actually burst anytime soon? "The market's been incredibly strong," says Narinder Seth economist

There are some reasons to slow down:

• Prices are simply too high for most investors to find any value in the housing market.There is no question that most housing markets are at the top of a bull market run. Most markets will not crash. Some will correct. All will produce terrific buying opportunities as the amateurs are flushed out of the market.
  
  
• With the average price doubling in the past one year, most owners have concluded correctly that the cash flow on rental properties is too low. Why take the risk and management troubles of investing in income housing properties?
  
  
• Furthermore, renters are no longer willing to pay the extra premium to buy when they can rent so cheaply. Why buy a home with monthly payments of Rs 50,000 a month when they can rent for Rs 10,000 a month?
  
  In sum, the risk-reward relationship favors selling for owners and renting for investors. The result? Prices must come down, rents must go up.