sip report sumit chatterjee- print copy

“A STUDY ON THE MESS IN THE HOUSING MARKET IN INDIA- IS IT A BUBBLE

OR NOT?”

Summer Training Project Report submitted in partial fulfillment of the

requirements for the

Post Graduate Diploma in Management

At

Jaipuria Institute of Management, Lucknow

By

Sumit Chatterjee

JL15PGDM136

Supervisor:

Mr. Keshav Aggarwal

Indiabulls Ventures (Lucknow)

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the Summer Project Study Report, Titled “A study on the Mess in the

housing market in India- is it a bubble or not” submitted by Mr. Sumit Chatterjee as partial

fulfillment of requirement of the two year PGDM (2014-2016) is a bonafide work carried out by

the student at our Institute.

This Summer Project Study is his/her original work and has not been submitted to any other

University/Institute.

Prof. Kajal Srivastava Dr. Raj Kumar Ojha

Project Supervisor Program Director- PGDM

Date:

Place:

Summer Internship Completion Certificate

Date:

To

The Director

Jaipuria Institute of Management

Lucknow

This is to certify that Mr./Ms........................................................ , student Batch PGDM 2014 –

16 at Jaipuria Institute of Management, Lucknow has successfully completed his/her Summer

Internship from…………………… to ……………………. in our organization.

During this period his/her performance was Satisfactory/ Good/ Very Good (Kindly tick one).

Remarks:

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

Signature

Name of the Issuing Authority……………………………………………………………………

Designation………………………………………………………………………………………

Official Seal ……………………………………

Declaration Certificate by Student

DECLARATION BY THE STUDENT

I Sumit Chatterjee student of PGDM batch (2014-1016) declare that the project entitled “A study

on the Mess in the housing market in India- is it a bubble or not”, is my own work conducted

under the supervision of Mr Keshav Aggarwal as a partial fulfilment of Summer Internship

Program for the course of PGDM submitted to Indiabulls Ventures, Park Road Hazratgunj and

Jaipuria Institute of Management, Lucknow

I further declare that to the best of my knowledge the project does not contain any part of any

work which has been submitted for any other project either in this institute or in any other

without proper citation.

Place :

Date: Signature of the Candidate

Acknowledgement

This project would not have been possible without the kind support and help of many individuals

and work of authors. I would like to extend my sincere thanks to all of them.

I am highly indebted to Mr. Keshav Aggarwal for his guidance and constant supervision as well

as for providing necessary information regarding the project & also for his support in completing

the project.

I would like to express my gratitude towards the members of Indiabulls Lucknow branch for

their kind co-operation and encouragement which helped me in completion of this project.

I would like to express my special gratitude and thanks to my faculty mentor for her constant

support and guidance.

My thanks and appreciations also go to my friends in developing the project and people who

have willingly helped me out with their abilities.

Executive Summary

This report provides a detailed analysis and evaluation of the current mess in the housing sector

in India along with its relationship with the financial sector. The basis of the study is the

speculation of a bubble in the housing sector along with its overall impact on the economy at

large. Methods of analysis includes housing affordability measure, housing debt measure,

housing ownership and rent measure and housing price indices. Other calculation includes Price

to Income Ratio, the housing debt to income ratio, and Gross rental yield. Results of the

calculations show that there is a housing bubble in the housing sector along with a possible

correlation with the financial sector of India. The report finds that the majority of housing

affordability measures indicates the poor state of the housing sector. The major areas of the

housing sector needs improvement and the recommendation discussed include:

Need of regulatory and supervisory body on the housing sector both at states and center.

The housing price index

Need of a land index be made available.

Strengthening institutional credit.

Formulate policies to restrict Black money.

Comparative study of the real estate market.

The report also investigates the fact that the analysis conducted has limitations. Some of the

limitations include:

Lack of available and reliable data

Lack of prior research and studies on the topic

Methods used to reach to the conclusion

It is concluded that there is a bubble in the housing sector which can trigger a credit bubble as

well, but the impending bubble is not going to burst anytime soon as there is a lot of money

flowing into the system thus keeping the bubble inflated.

TABLE OF CONTENTS

Chapter 1 INTRODUCTION .......................................................................................................... 1

1.1 Industry Overview ................................................................................................................. 1

1.2 Problem Statement ................................................................................................................ 5

1.3 Rationale of the Problem ...................................................................................................... 6

1.4 Methodology ......................................................................................................................... 7

1.5 Scope of the Study ................................................................................................................ 8

1.6 Limitations of the Study........................................................................................................ 8

Chapter 2 DETAILS OF THE ORGANIZATION ....................................................................... 10

2.1 Introduction ......................................................................................................................... 10

2.2 The Organization ................................................................................................................ 10

2.2.1 Projects ......................................................................................................................... 11

2.2.2 Organization Structure ................................................................................................. 14

2.2.3 HR Practices................................................................................................................. 16

2.2.4 Competition Analysis................................................................................................... 19

2.2.5 Industry Analysis ......................................................................................................... 20

2.4 SWOT Analysis of Company ............................................................................................. 21

2.5 PESTEL Framework Analysis of Company ....................................................................... 22

2.6 Michael Porter‟s Five Forces Model- Industry Analysis .................................................... 24

2.7 Conclusion .......................................................................................................................... 25

Chapter 3 THE PROBLEM ON HAND ....................................................................................... 26

3.1 Introduction ......................................................................................................................... 26

3.2 Problem Area Identification ................................................................................................ 29

3.3 Description of the Task ....................................................................................................... 29

3.4 Detailed Analysis of the Task ............................................................................................. 30

3.5 Criticality of the Task ......................................................................................................... 37

3.6 Conclusion .......................................................................................................................... 38

Chapter 4 LEARNING OUTCOMES .......................................................................................... 39

4.1 Comprehension of the Task ................................................................................................ 39

4.2 Problems faced during Accomplishment of the Task ......................................................... 39

4.3 Methods adopted to solve the Problems ............................................................................. 41

4.4 Overall Learning from the Task .......................................................................................... 42

4.5 Conclusion .......................................................................................................................... 43

Chapter 5 RECOMMENDATIONS ............................................................................................. 44

5.1 Brief Description of Recommendations .............................................................................. 44

5.2 Details of Each Recommendation, Discussion of Its Technical Suitability, Economic

Justification and Feasibility of Implementation. ....................................................................... 45

5.3 Suggested Scheme of Implementation, Precautions and Monitoring Systems ................... 50

5.4 Conclusion .......................................................................................................................... 52

Chapter 6 CONCLUDING REMARKS ....................................................................................... 53

6.1 Summary ............................................................................................................................. 53

6.2 Gains from the Project ........................................................................................................ 55

6.3 Limitations of the Project.................................................................................................... 56

6.4 Scope for Further Work ...................................................................................................... 58

6.5 Conclusion .......................................................................................................................... 59

11. References ............................................................................................................................... 60

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Chapter 1 INTRODUCTION

1.1 Industry Overview

The real estate sector is one of the most growing sector in India and is expected to touch $853

billion by 2028. In the last few years the sector has received huge investments and became the

most preferred destination for investment as well. The housing sector alone contributes 8-9% of

GDP and is expected to grow as the sector is about to grow at 13.9% CAGR. The real estate

sector is comprised of housing, retail, hospitality and commercial sectors and is a central theme

of the government of India. As of 2016 real estate sector is the second largest employment

generator after agriculture and is expected to grow at 30% over the next decade. The demand for

commercial spaces have also grown in the top 8 metros- Mumbai, Bengaluru, Chennai,

Hyderabad, Ahmedabad, Kolkata, NCR, Pune and Delhi was up at 58% from the previous

quarter. The residential segment also saw an increase of 38% during the first quarter of 2016

with Bengaluru recording the largest number of units, followed by Mumbai and Chennai.

The demographics of India indicate that it can be a leading destination for real estate business

globally. The country has huge population and demand for the residential apartments are

skyrocketing as about 10 million people are moving to urban cities annually and is going to

increase to approx. 18.8 million in a decade.

Figure 1.1

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The liberal economic policies of government of India have allowed a huge inflow of money from

foreign destinations and are still aiming to improve private participation. The strong

fundamentals of the Indian economy such as young population, rising urbanization and growing

middle class population has helped the overall sector to grow at an unprecedented rate. It is also

expected to attract more NRI investments as Bengaluru is expected to be the most favored

property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi

and Dehradun.

According to data released by Department of Industrial Policy and Promotion, the construction

development sector in India has received Foreign Direct Investment (FDI) equity inflows to the

tune of US$ 24.19 billion in the period April 2000-March 2016 and the 12th

five year plan has

pledged to invest a trillion dollars on Infrastructure.

Figure 1.2

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Figure 1.3

The construction development sector including built-up infrastructure, housing, townships,

construction development projects etc. have garnered a total FDI of worth $23,131.64 million in

the period April 2000-February 2014.

The residential sector has ample growth in the nation and is bound to grow because of favorable

economic environment. Further, demand for space is going to increase as improvement in any

services be it education, healthcare, commerce or logistics require new infrastructure to support

the growth. Indian GDP has quadrupled to reach USD 2.6 trillion in 2016 and is expected to

become the third largest economy worth USD 6.6 trillion by 2028.

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Challenges

There are broadly five challenges that the real estate sector may have to face in India.

First there is lack of suitable developable land as the prices of the land has sky rocketed and the

government has started the strategy of land pooling. The government has to do something with

the price of the land- the prices can‟t sustain for more and are bound to collapse when the money

runs out.

Secondly, the regulatory process in India is slow and confusing. It takes approx. 227 days to get

all the 34 mandatory approvals before the start of a project. Regulations need simplifications.

Third, there is land related issues and the government is working on the Land acquisition bill for

quite some time. Digitization of land records is also solving the problem to a large extent.

Fourth, Inadequate funding channels: In India due to huge NPA‟s of public sector banks there is

lending shortage in the banking sector as the banks have less capacity to lend. The government

needs to keep a balance in this arena.

Fifth, Shortage of manpower and technology. The skill India initiative has to be successful for

the real estate sector to fly. Increased digitization will help in the future.

The real estate industry is booming in India but the prices are going out of the reach of common

people. The government will have to keep a balance between the interests of the investors and

the consumers as well. Like in many western countries the prices of real estate can lead to

depression especially in the developing nation and hence the government need to check for the

impending bubbles and take necessary measure before it bursts.

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1.2 Problem Statement

The Real Estate sector in India was a booming industry and is still among the fastest growing

industry in India thanks to the government‟s interest in infrastructure sector. Recently the prices

of the houses have gone down a little bit as compared to what it used to be just five years ago-

inflation adjusted, but the real question still exists whether the real estate sector is in bubble or

not. The house price to income ratio of India indicates that it‟s becoming increasingly difficult

for buyers to afford a house.

Figure 1.4

It is also important to note that the real estate bubbles are seen as a trigger of credit bubble as

well because property owner generally use borrowed money to purchase property in the form of

mortgages. When the prices increase the property owner feels rich and further borrows to

consume or make money against the increased value of their property by taking out a home

equity line of credit. Borrowers speculate by buying property with borrowed money in the

expectation that it will rise in value but when the bubble bursts, the value of the property

decrease but not the level of the debt. The burden of repaying or defaulting on the loan further

depresses the aggregate demand. When the demand is low real estate inventory increases

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exponentially and they in return could pay back the loans that they have taken from the bank. It‟s

a situation when at a time a number of individuals and organizations default creating an

increasing pressure on the banking sector. The NPAs increases and the bank start to restrict

lending.

This study tries to figure out whether the real estate sector is in bubble or not.

.

1.3 Rationale of the Problem

This report is on the probable real estate bubble in India and its overall ramifications on the

economy at large. Due to lack of relevant statistics in the country there have not been much of

studies conducted on the real estate bubble but now it has come into the limelight of economists

and hence numerous research and studies are being done on the real estate sector. The problem at

hand can have significant impact on the economy and finance of the country as is evident from

the western real estate bubble burst. The housing sector in India plays an important role in the

economy and any shock in the housing sector can have significant impact on the overall

consumption and demand in the economy. Since the real estate sector contributes 10% to the

GDP hence it becomes important for the government to have control over the sector. In India

lifetime savings are used to buy properties and hence the government needs to be sensitive

towards the policies of the sector.

It is also rational to understand that the real estate bubbles are seen as a trigger of credit bubble

as well because property owner generally use borrowed money to purchase property in the form

of mortgages. When the prices increase the property owner feels rich and further borrows to








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lending.

Hence the problem at hand makes an immense sense to have a thorough study to figure out the

impending bubble in the real estate market.

1.4 Methodology

There has been a lot of research done over housing bubble in the west and some Asian countries.

Some think tanks used housing affordability measure while others used housing debt measure.

Housing ownership and rent measure and housing price indices has also been used to figure out

whether there is bubble in the housing sector or not. In this study all the above mentioned

indicators has been analyzed. To do the same secondary data has been used from official and

concerned authorities. GOI declared data has mostly been used along with data from independent

authors and columnist.

Calculations such as housing affordability measure, housing debt measure, housing ownership

and rent measure and housing price indices has been accepted as a measure to investigate

whether there is a bubble in the housing sector and not and in this study secondary data has been

used for various calculations.

Calculations like per capita income by adjusting the inflation, rent yield of various cities,

weighted average price of a flat in various cities, years of savings to buy a home, % increase in

the prices of flats in various cities and months of unsold inventories have been made to further

calculate the relevant ratios.

This report uses the following statistical measures to spot a bubble in the real estate sector:

Price to Income Ratio =

The housing debt to income ratio =

Median ratio of free market price for housing unit

Median of household annual income

Total recurring monthly debt

Gross monthly income

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Gross rental yield=

1.5 Scope of the Study

Risk analysis is a process that is often ignored by the investors particularly by the individual or

smaller investors who tend to be more vulnerable. The problem of bubble In the real estate can

be used in a number of different scenarios like housing affordability measure, price to income

ratio, the affordability index, housing debt measure and a number of other indictors which will

finally enable the management to take informed decisions in the real estate sector plus it will

enable the organization to provide information to the clients to make informed investments. The

scope of the study can have a wide impact on the way we look at the real estate sector because

Indiabulls is both in the real estate as well as in the housing loan sector.

1.6 Limitations of the Study

Due lack of data and Indices from the authorities a lot of data crunching has been done

independently and hence the calculations so made in this report are somehow understated as the

per capita income of some of the cities was not available. Recent data of almost all the cities was

not available and hence a 10% increase in per capita income is assumed to do the relevant

calculations. The data for Delhi Capital region and Mumbai were not made available by the state

level economic surveys and hence for Delhi capital region the per capita income of Delhi area

has been used, on the other hand the per capita income of Mumbai and Thane has been used to

calculate the per capita income of Mumbai. Further the rental yield data is also not available

apart from the major cities in India and hence the rental yield has been supposed to be the

average of all the seven cities that has been used in calculating the overall yield which is in

between 2 & 3.

At the time of making this report the housing index „Residex‟ has not been made public as the

website of Government of India was inaccessible. According to the news from few media

houses, the Residex is still not ready and the government officials are still trying to make the

Annual rental income * 100

Property Value

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single most official index related to the housing sector in India. The government has a dedicated

website for Residex but it‟s not accessible.

Further due to the unavailability of data the following calculations couldn‟t be made.

The deposit to Income ratio: Due to the unavailability of statistics the minimum downpayment

for a typical mortgage couldn‟t be calculated and hence a ratio that measures the housing market

couldn‟t be calculated. Banking sector of India has not provided the information of how many

people have taken loans more than 50 Lakhs. The data of number of persons who has taken loans

of around 25 Lakhs for housing is available but not relevant for this study as there was no city

whose average house price was in the range of 25 Lakhs.

The housing debt to equity ratio couldn‟t be studied because of the unavailability of data. In

India it‟s impossible to find out how many persons are taking a second home equity loan using

the accumulated equity or house as collateral. A ratio greater than one implies that owners equity

is negative. The housing debt to equity ratio is an important measure. Had it been possible to

calculate this, the results would have been dramatically influenced.

The credit bubble that forms because of the bubble in the real estate sector is complicated to

study and not a subject matter of this report but few citations have been made as data which were

available in the credit sector that had a direct link to the real estate sector has been used to do the

calculations. Statistics and ratios related to real estate sector is seldom available and hence data

availability has been the main problem during the compilation of this report.

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Chapter 2 DETAILS OF THE ORGANIZATION

2.1 Introduction

Indiabulls Real Estate is India‟s third largest real estate company with a Gross Development

Value of Rs. 34,566 Cr., and net worth of Rs. 7,899 Cr. (as of March 31st, 2016), and with 11

on-going projects with total saleable area of 30.51 million sq. ft. under its wing. The company

has planned two new projects with total saleable area of 7.29 million sq. ft. Additionally the

company has a land bank of 1,017 acres and also possesses 2,588 acres of SEZ land at Nasik,

Maharashtra. Recently, Indiabulls Real estate acquired the prime property, 22 Hanover Square in

Central London for Rs.1630 Cr.

2.2 The Organization

Indiabulls Real Estate has earned a distinct reputation for building projects that turn spaces into

inspiring places. With prime focus on construction and development of residential, commercial

& SEZ projects across major Indian Metros & London, Indiabulls Real Estate went on to expand

its projects portfolio. Today it ranks third amongst the top Real Estate companies with a total

Gross Development value of INR 34,566 crores and net worth of INR 7,899 crores as of March

31, 2016. Indiabulls Real Estate‟s strategic partnership with Farallon Capital Management LLC

of USA was instrumental in bringing the first FDI into real estate in India. Currently IBREL has

11 on-going projects in India with total saleable area of 30.51 million sq.ft. It also has three new

projects that are planned to be launched shortly with total saleable area of 7.29 m sq. ft. The

company has a fully paid for land bank of 1,017 acres and also possesses 2,588 acres of SEZ

land at Nashik, Maharashtra.

IBREL is currently developing 40.79 million sqft into premium quality, high-end commercial,

residential and retail spaces in the Metros- Mumbai, Delhi NCR & Chennai, apart from Tier I

cities. With its recent acquisition of the prime property, 22 Hanover Square in central London for

INR 1,630 crores IBREL is consolidating its presence internationally as well. Some of the iconic

landmarks of IBREL that have redefined commercial spaces in Mumbai are One Indiabulls

Centre & Indiabulls Financial Centre with over 3 million sq.ft. of sprawling commercial space.

Indiabulls Real Estate has delivered a record 3.3 million sq ft developed space valued at $ 1

billion (within 4 years of inception). This is fastest and largest delivery in value of terms by any

Indian real estate developer in the same time period.

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IBREL has been assigned credit rating of AA- for long term debt and A1+ for short term loan by

CARE and International ratings of B+/B1/B+ by S&P/Moddy‟s/Fitch respectively.

2.2.1 Projects

Residential Projects

Indiabulls real estate has ongoing residential projects in Mumbai, Delhi NCR, Ahmedabad,

Chennai, Vizag, Hyderabad and Madurai.

In Mumbai they have eight ongoing residential projects-

1. Blu Estate and Club: Ganapatrao Kadam Marg, Upper Worli, Lower Parel, Mumbai,

Maharashtra 400018

2. Indiabulls Parks: Kon-Savle Road, Opp. Honda Warehouse, Next to Kon Toll Naka P.O

Ajivali, Kon, Panvel, Navi Mumbai, Maharashtra 410206

3. Indiabulls Sky: Senapati Bapat Marg, Saidham Nagar, Parel, Mumbai, Maharashtra

400012

4. Indiabulls-Sky Forest: Senapati Bapat Marg, Saidham Nagar, Parel, Mumbai,

Maharashtra 400012

5. Indiabulls Golf City: Savrolli, Khalapur Toll Naka, Mumbai - Pune Expressway,

Khopoli, Tambati, Maharashtra 410202

6. Indiabulls Greens: Kon-Savle Road, Opp. Honda Warehouse, Next to Kon Toll Naka P.O

Ajivali, Kon, Panvel, Navi Mumbai, Maharashtra 410206

7. Indiabulls Sky Suites: Indiabulls House, Indiabulls Finance Centre, Senapati Bapat Marg,

Elphinstone Road, Babasaheb Ambedkar Nagar, Mumbai, Maharashtra 400013

8. Silverlake Villas

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In Delhi NCR region they have 4 ongoing projects-

1. One Indiabulls Gurgaon: Sector 104, Dwarka Expressway, Gurgaon, Haryana 122006

2. Indiabulls Centrum Park: Sector 103, 75Mtr Road, Dwarka Expressway, Gurgaon,

Haryana 122006

3. Indiabulls Enigma: Bajghera Rd, Block R, New Palam Vihar Phase 1, Sector 110, Pawala

Khasrupur, Haryana 122017

4. Indiabulls Sonepat.

In Ahmedabad they have two ongoing projects-

1. Vatika: Near GEC International Study Centre,, Ahmedabad, Gujarat, India

2. Indiabulls Centrum: Himadri Mill Compound, Near Haribhai Godani Hospital, Saraspur,

Ahmedabad, Gujarat 380018

In Chennai they have one ingoing project-

1. Indiabulls GREENS: 68/1A, Jalladianpet Joint Jalladianpet, Near, Perumbakkam Main

Rd, VGP Prabhu Nagar, Medavakkam, Chennai, Tamil Nadu 600100

In Madurai also they have one ongoing project-

1. Indiabulls Centrum: 2B, Kothandaram Mill Rd, Mahalipatti, Keerathurai, Madurai, Tamil

Nadu 625001

In Hyderabad also they have one ongoing project-

1. Indiabulls Centrum: 1-2-606/156, LIC Colony, Lower Tank Bund, Kavadiguda,

Hyderabad, Telangana 500080

In Vizag also there is one ongoing project-

1. Indiabulls Sierra: Plot No: 11, 100 Feet Road, Madhurawada, Visakhapatnam, Andhra

Pradesh 530041

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Commercial Projects

Indiabulls have ongoing commercial projects in Mumbai, Delhi NCR and Vadodara.

Commercial projects in Mumbai are as follows-

1. Indiabulls Finance Center: Indiabulls Finance Center, K.G.Marg, Babasaheb Ambedkar

Nagar, Lower Parel, Mumbai, Maharashtra 400013

2. One Indiabulls Centre: One Indiabulls Center Tower Ii A, Balasheth Mandurkar Marg,

Saidham Nagar, Parel, Mumbai, Maharashtra 400012, India

3. The HUB at One Indiabulls Centre: One Indiabulls Center Tower Ii A, Balasheth

Mandurkar Marg, Saidham Nagar, Parel, Mumbai, Maharashtra 400012, India

Commercial projects in Delhi are as follows-

1. Indiabulls one 09: Sector 109, Dwarka Expressway, Gurgaon, HR 122001

Commercial projects in Vadodara are as follows-

1. One Indiabulls: India Bulls: 16, Akota Rd, Purushottam Nagar, Haripura, Vadodara,

Gujarat 390020, India

Special Economic Zone Project (SEZ)

Indiabulls Nasik SEZ is being developed jointly with Maharashtra Industrial Development

Corporation (MIDC), the premier Industrial Infrastructure Development agency of Government

of Maharashtra that has developed over 60,000 hectares of Industrial land in Maharashtra.

SEZ Projects are as follows-

1. Indiabulls Neo City: G-1, Ground Floor, Suyojit Moder Point, Sharanpur Road, Police

Parade Ground, Govind Nagar, Nashik, Maharashtra 422009

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2.2.2 Organization Structure

Indiabulls real estate sector follows a matrix organizational structure in which a team of

employees accomplish a work in order to take advantage of the strengths of the each employee.

Since Indiabulls has many other businesses like Indiabulls housing finance and Indiabulls

ventures therefore the company follows the balanced matrix to have a to and fro relationship

with the other functional areas. The hierarchy of the organization is as follows.

Since the company has been formed in the year 2005 therefore the company‟s structure has not

consolidated yet and hence cross sectional hierarchy is common In Indiabulls Real Estate.

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The hierarchy of the whole Indiabulls family is as follows

Hence the company follows a matrix structure.

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2.2.3 HR Practices

Employment

1. Any permanent position to be filled in must be budgeted & must have Head HR &

Business Head approval before hiring.

2. After defining the job specifications and the skill & experience requirements (through a

Manpower Requisition Form), it is decided whether the position should be internally sourced or

through external recruitment.

3. In case of selection process involving internal candidates, Human Resource acts as a

coordinator, so that all issues related to transfer, release etc. between two departments are

resolved satisfactorily.

4. In the event of a decision to go for an external source, Human Resource is to be the

coordinating point with external agencies. Human Resource is also be responsible for

establishing contracts related to fee structure & processes etc. with the external search firms.

This is to ensure uniform & consistent communication on all recruitment matters.

Work culture

The work culture at Indiabulls is a perfect blend of performance acceleration systems,

innovation, technology, constructive means, robust rewards system, trust and integrity. Indiabulls

focuses on hard facts, business trends and productivity, and facilitates work-life balance by

supporting personal success. Even small achievements are noted and celebrated while laudable

actions and outcomes are duly recognized and rewarded. Every employee‟s ideas, opinions and

perceptions are recognized. Training, mentoring and development programs are an on-going

feature.

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Indiabulls strongly believes that teamwork is the greatest driving force towards success and it

promotes an open door policy to encourage communication and understanding amongst its

employees. Diversity and inclusion are key components of the company‟s work culture. People

are valued for what they do and how they do it, and not for where they come from. All

employees are expected to contribute towards building an inclusive culture by working together.

Dress code

Employees are required to attend work in formal attire on weekdays. Formals imply either light

colored or pin striped or subtle checks (either full or half sleeves) with tie and formal trousers

(no chinos, jeans) for men. For ladies formals imply salwar kameez, western formals or sarees.

Employment benefits

Statutory Benefits

The Provident Fund and Gratuity are governed by Acts of Law and are statutory.

Provident Fund

Provident Fund is one of the mandatory schemes established by the Government of India to

provide social security to the service class. Each staff member from his date of joining becomes

a member of the Provident Fund scheme that is administered through Regional Provident Fund

Commissioner Office, Mumbai.

Contribution

• The staff member shall contribute 12% of their Base salary to the provident fund. The

contribution will be made by deducting the amount from the monthly salary. The Company also

makes a contribution equivalent to 12% of the base Salary of the staff member.

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PERFORMANCE APPRISAL AND REWARD MANAGEMENT SYSTEM

Performance Appraisal

a) Annual Performance appraisal will be done every year for the performance in the

previous financial year.

b) The appraisal process consists of

• Self evaluation

• Appraisal by the immediate superior

• Review by the functional / departmental head

• Balancing by Head HR, Business Head

Awards Function

The awards function encourages the spirit of competition amongst the employees and inspires all

employees to better their performance in the previous years. On the eve of the function a

souvenir is brought out with the highlights of achievements of individuals, teams, branches and

states. Different types of awards are distributed to the winners.

BUSINESS ETHICS

Disciplinary Code & Procedure

It is the policy and the objective of the organization to promote exemplary behavior to attain high

standards of ethics and conduct. The organization expects its employees to display poise and

dignity in day-to-day affairs. It is the organization drive to establish itself as a safe, respectable

and pleasant working environment. The Disciplinary Code and Procedure has been developed to

ensure employees are aware of the high standards expected of them in the work place and to aid

management in implementing and maintaining discipline with fairness and consistency.

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Code of Conduct

It‟s key to the maintenance of public confidence and proper functioning of the organization, that

every employee performs his/her duties with honesty and integrity. To this effect, employees are

required to adhere to the code of conduct, in force from time to time.

.

2.2.4 Competition Analysis

The competition in the real estate sector has become stiff in the recent past. Companies like DLF

Limited, Vatika, omaxe, BPTP and Jaypee are the major competitors to the Indiabulls Real

Estate sector.

DLF Country's largest realty firm has rental assets of about 30 million sq. ft., largely in Gurgaon,

with an annual rental income of about Rs 2,400 crore. Of this, about 13 million sq ft is in Cyber

City area where current monthly rentals are ruling at Rs 95-100 per sq ft. The company has

created a large platform of rent yielding commercial office and retail assets which is now ready

to be partially monetized through sale of equity. Also the company is planning to invest about Rs

900 crore over the next three years on construction of its new commercial project in Gurgaon

covering about 2.2 million sq ft of office space.

Vatika an affordable housing unit has been doing extremely well in the recent past and hence is

bound to have a substantial share in the affordable housing unit. The company can expect quick

sales from customer segment with income in the range of Rs 30,000 to Rs. 50,000.

Omaxe Ltd has claimed to be a leading real estate player in the country and has launched various

projects in just 3 years of time. The Lucknow township which is Spread over approximately

2700 acres is expected to yield an estimated revenue of over Rs 2,800 crores and would cater to

the growing demand of quality living space in the city. Realty major Omaxe has entered into an

agreement with the Lucknow Development Authority to develop a township in Lucknow.

Recently, it also forged a similar tie-up with Allahabad Development authority as well.

Jaypee group and its real estate division is one of the major player in the market. The group is

currently focusing in Noida where few of its ambitious projects are going on. Further the group

is involved in developing a sports city on a built area 2,500 acres.

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The competition in the real estate sector is growing as there is an increased amount of inflow in

the companies due to attractive returns in the sector.

2.2.5 Industry Analysis

India has already been declared as a land of opportunities for business and investments. The FDI

in India stood at USD 30.93 billion in the year 2014-2015 and is bound to increase to USD 50

billion this fiscal. The real estate sector is expected to reach $180 billion by 2020 form $93.8

billion in 2014. It is currently the fourth largest sector in the country in terms of Foreign Direct

Investment inflows. Total FDI in the construction development sector during April 2000–May

2015 stood at around US$ 24.07 billion.

The Government of India has been supportive to the real estate sector. In August 2015, the Union

Cabinet approved 100 Smart City Projects in India. The Government has also raised FDI limits

for townships and settlements development projects to 100 per cent. Real estate projects within

the Special Economic Zone are also permitted 100 per cent FDI. In Union Budget 2015-16, the

government allocated US$ 3.72 billion for housing and urban development. The government has

also released draft guidelines for investments by Real Estate Investment Trusts in non-residential

segment.

Further upcoming requirement of the infrastructure development will lead a huge growth in the

real estate sector. There is a booming consumer in India along with organized retail growing 30-

35 percent annually.

India‟s population below 30 years of age having exposure to global retail is expected to drive the

demand for the organized retail. There is also a demand for commercial spaces as the business

environment is rapidly changing in the country and a lot of new ventures are coming in the

country.

Also the residential real estate has witnessed an good growth in the past due to migration, job

opportunities in cities, growing income levels, rise in nuclear families and easy availability of

finance.

The commercial real estate is booming as India is moving towards digitization and a lot of

infrastructure support is required for the new ventures to fly off.

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Hence the industry is booming at a very fast rate as the need of countries infrastructure is

increasing to sustain the development.

2.4 SWOT Analysis of Company

Strengths Weaknesses

3rd

largest real estate company in

India.

PAN India Presence.

Has already delivered numerous

projects.

Best use of technology, from

websites to internal systems.

Company has accumulated a sizable

land bank from government and

acquisitions at competitive prices

and hence has a solid presence.

Has taken up large government

projects.

Very efficient personnel and internal

system to successfully manage and

run large construction projects that

take several years to complete.

Strong brand value.

The margin has fallen down and the

prices of the houses have also gone

down.

Tax Structure.

Opportunities Threats

Growing demand.

New markets as the company is

undertaking projects in 2 tier and 3

tier cities.

Lots of money flowing into the

Fluctuation in the global economy.

Government Regulations.

Rising costs of raw materials.

Stiff competition from other

developers in the market and the

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2.5 PESTEL Framework Analysis of Company

The real estate sector is thought to be in a sweet spot in India as a lot of money is coming in the

sector- it goes without saying that the easy money policy around the world and black money here

in India has definitely found its way in the real estate sector in India.

Politically the sector is stable because there is an incredible amount of wherewithal which is still

playing a big role and it‟s definitely a matter of time for the real beneficiaries to get unveiled as

the governor of RBI has definitely tightened the rules of the game and banks are forced to reveal

there NPA‟s and the way they have been lending to various builders around the country.

Corruption in the top notch of the country has significantly come down and it has definitely

played a significant role in curbing the black money of the politicians to directly flow into the

real estate sector fuelling the already hyper priced industry. Additionally, the government has

provided incentives to the real estate investment trust and has also planned to make 100 new

smart cities which will definitely benefit the industry and nation as a whole. One political hurdle

is still there which needs to be fixed is the land acquisition bill which is yet to be passed.

Economically the sector is booming as its getting help from all around the corner ranging from

government to the foreign investors. The government has allocated Rs 7,600 crore for 100 smart

cities, Rs 12,000 crore to the National Housing Board of which Rs 4,000 crore is for affordable

housing. Overall the economic sentiments is all bullish for the sector but the sentiments of the

people will play an important role as government can build buildings but at the end of the day

it‟s the buyer who will decide whether they have enough faith in the system or not.

sector and the laws are also in

favour.

Development of SEZS and

affordable homes is the major

growth area in the near future.

competition is increasing day by

day.

Consumer sentiments can bring

about a bearish situation in the real

estate sector as happened in so many

developed countries.

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Socially there is a lot of negativity going around about real estate as in the past there were

innumerable cases of delay possession and no possession at all. In India 40% of the inventory is

still unsold and builders are continuing building and taking up new projects despite having

inventories for more than 2 years. The prices of the homes are artificially inflated and the

economically buyers don‟t have the capacity to buy homes to live in as the average prices of the

houses have gone up drastically but the income levels are approximately at the same level. Hence

socially it‟s going to be the responsibility of the builders and government to gain the faith of the

consumers in the long run.

Technological landscape is extremely dynamic and it has helped the real estate sector in various

ways. First the online platforms provide an incredible opportunity to the builders or underwriters

to connect with the potential customers, it has helped bring down the costs of building the

houses, fasten the process and can be helpful in bringing transparency in the system. Secondly it

can dramatically improve the efficiency of the sector as it can provide real time information of

what consumers actually want and catering to that would be a game changer. Currently India is

one among the most internet savvy country in the world and infrastructure is going to be a lot

better with the partnership of Cisco, Google, Microsoft and Facebook. India has become a lot

self-sufficient in technology and recently she has got its first indigenous GPS system which will

provide real time information related to the location and is going to be helpful in allocating the

land. GPS will indispensable for the allocation of land and it will greatly help bring transparency

in the system.

Legal system has not been consolidated yet as the sector is relatively new and the government is

still working on the legal frameworks for the real estate sector, but there are a number of

frameworks that are applicable to the real estate sector such as the obligation of the company to

pay the buyers If the builder fails to deliver in time. Secondly there has been a lot of regulations

on the amount of houses that person can have etc.

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2.6 Michael Porter’s Five Forces Model- Industry Analysis

Michael Porters five forces to analyze the overall attractiveness and the level of competition

within an industry are Threat of new entrants, Threat of substitutes, bargaining power of buyers,

bargaining power of suppliers and Industry rivalry.

The detailed analysis of all the five forces is as follows;

Threat of new entrants: The returns in the real estate sector is very high and hence will attract

new firms which will eventually decrease the profitability of all the firms in the industry. Unless

the competition is killed by the major players the abnormal profits will tend towards zero.

Threat of substitutes: In the real estate sector there is no substitute available as of now as a house

can‟t be substituted with anything except of going to the competitors. No one has ever made

anything that can be considered as a substitute to house.

Bargaining power of buyers: Due to the abnormal pricing and availability of houses from the

competitors there is a huge power of bargaining that resides in the hands of the customer. Hence

bargaining power is high as the rates are not fixed and often confusing.

Bargaining power of suppliers: Huge bargaining is done on the supply side as a huge number of

suppliers of the same inputs are available in the market.

Industry Rivalry: There is an insane amount of rivalry in the real estate sector. The innovation is

there in the finances that a company gets in order to outperform the competition. There is less

sustainable competitive advantage though as innovation plays a small part in India.

Hence from Poter‟s model we can conclude that the real estate sector is highly attractive as of

now.

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2.7 Conclusion

There is a lot of activity required in the real estate industry and that‟s exactly what is happening

in India. Indiabulls real estate sector as a business group is doing exceptionally well given the

current euphoria in the real estate sector. The overall industry is growing at an unprecedented

rate and is bound to grow given the requirement of infrastructure in the country. For the country

to develop at a faster rate it is very much essential to have a robust real estate industry.

The industry and the organization is getting a lot funding from the overseas. In fact Indiabulls

was the first company In real estate to receive first ever FDI in India. The trend is still going

bullish as there is a lot of hope from the country all around the globe. The future also seems to be

bullish.

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Chapter 3 THE PROBLEM ON HAND

3.1 Introduction

In many developing and developed countries the real estate bubble just emerged when the prices

of the local or countries real estate increase rapidly, generally followed by the land boom in

which the land prices shoots to unsustainable levels due to various economic factors and then

decline in a bubble. In India the prices of land has already skyrocketed and the prices of the real

property such as housing has reached unsustainable level. The unsustainability for longer periods

may lead to crash of the entire sector as there won‟t be much of buyers in the market backed with

the purchasing power. Also as evident from various economies, real estate bubbles involve

longer boom and bust periods. It is also argued in the field of economics whether bubbles can be

identified or predicted but the speculative bubbles are persistent as it is the phenomena of

systematic and increasing deviations of actual prices from their fundamental values. It can be

argued that it‟s hard to spot a bubble but spotting a significant price hike in any sector is not very

hard and steps should be taken to first understand the basics behind the high prices and the

corrective measures.

In real estate the fundamentals can be estimated from rental yields. Gross rental yield = (Annual

rental income / Property value) x 100. In India the rental yields are totally out of whack.

Table 1.1

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If the real estate market was correctly priced the rental yield should at least be close to

somewhere around the cost of borrowing. Instead it‟s around 2% when the lending rates are

around 10%. Even china which recently had a huge real estate bubble has better rental yield than

India. In fact table xyz shows that the difference between the interest rates in which the money

can be borrowed and the rental yield is one of the highest in India. Currently a home loan can be

borrowed at around 10% and the rental yield is 2%, a difference of 8%.

Table 1.2

What this tells us that at 2% rental yield the market price of the homes in India has risen at a

much faster rate than the rents. The rental yield in India has remained extremely low as

compared to its other Asian peers pointing towards the over valuation of this asset class mainly

because it can absorb black money- Mukhejea and Shekhar.

The problem is that the rent yield can‟t continue to remain out of proportion for a long time. For

it to come close to proportion either the rents need to increase or the house prices need to

decrease. Given the unsold inventory right now, it is highly unlikely that the rents will rise and

hence the chances of falling property prices are significantly higher.

Another problem at hand is the fact that the real estate bubbles are seen as a trigger of credit

bubble as well because property owner generally use borrowed money to purchase property in

the form of mortgages. When the prices increase the property owner feels rich and further

borrows to consume or make money against the increased value of their property by taking out a

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home equity line of credit. Borrowers speculate by buying property with borrowed money in the




exponentially and they in return couldn‟t pay back the loans that they have taken from the bank.

It‟s a situation when at a time a number of individuals and organizations default creating an


lending. It constitutes the proximate cause of subsequent economic slump.

Hence the problem at hand is the speculation of bubble in the real estate sector and its

microeconomic implication on the overall economy.

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3.2 Problem Area Identification

It is argued that the real estate bubbles can‟t be identified as they occur and cannot be prevented

with government and central bank policies rather cleaning up after the bubble has burst. The

British magazine „The Economist‟ and American economist Robert Shiller argued that the

housing market indicators can be used to identify real estate bubbles. The housing market

indicators focus on two aspects. A valuation component and a debt component; Valuation

component measures how expensive houses have become related to what an average person can

afford and the debt component measures how indebted households become in buying real estate

for home or profits and also how much exposure banks accumulate by lending for them.

The problem area so identified with respect to the real estate sector is the affordability of houses

using the housing affordability measure, the ability to repay the debt using housing debt measure,

the potential of profits from rent and the overall ownership using housing ownership and rent

measure and the overall price movements of the real estate sector using housing price indices.

All these problems finally led to the housing bubble which is the topic of this study. Hence all

the problems so identified in the real estate sector is finally converging into one big bubble. If

there is no bubble there won‟t be any problem area as such.

3.3 Description of the Task

The task at hand and the topic of the project is to investigate whether there is a bubble in the real

estate sector or not. It is also argued that a bubble cannot be identified but a speculative bubble

can be identified and the government along with the central bank should work on the various

indicators. The scope and task of this project is to figure out the appropriate economic indicators

and financial ratios that are generally used to investigate the impending bubble in the real estate

sector and use them to calculate mathematically whether there can be a bubble in the market or

not.

As mentioned in the problem identification the task then is to use the mentioned techniques to

investigate the bubble. The techniques used in this study are housing affordability measure,

housing debt measure, housing ownership and rent measure and housing price indices.

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3.4 Detailed Analysis of the Task

The scope and task of this project is to figure out the appropriate economic indicators and

financial ratios that are generally used to investigate the impending bubble in the real estate

sector and use them to calculate mathematically whether there can be a bubble in the market or

not. The techniques used in this study are housing affordability measure, housing debt measure,

housing ownership and rent measure and housing price indices.

Housing affordability measure

Under this we will discuss in detail the affordability of real estate in India and its implications.

Recent data released by real estate research firm Liases Foras shows that homes in Indian cities

are terribly expensive.

Table 1.3

City Weighted Average Price of a Flat

Mumbai Metropolitan Region Rs 1.34 Crore

National Capital Region Rs 75 Lakh

Bangalore Rs 88 Lakh

Pune Rs 58 Lakh

Hyderabad Rs 75 Lakh

Chennai Rs 63 Lakh

Table xyz reveals the average prices of houses and flats in various cities but it doesn‟t tell how

bad the situation really is. In order to understand we needed to take the per capita income of

these cities into account.

The state level economic surveys provide the per capita income of various cities and the trouble

here is that the latest numbers are not available. Hence I have assumed an average increase of

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10% of income per year and calculated the average of the respective cities for the year 2014-

2015. Further I couldn‟t find any data on the average income of Chennai and hence Chennai has

not been taken into account for calculation. For Mumbai I have used the per capita income of

Mumbai and thane and for Delhi capital region I have used per capita income of Delhi only.

Hence the calculations are a little understated but it surely serves the purpose as the real data

won‟t have much of deviation from the data crunched here in this study.

Table 1.4

City Per Capita Income

Mumbai Metropolitan Region Rs 1.97 Lakh

National Capital Region Rs 2.31 Lakh

Bangalore Rs 1.08 Lakh

Pune Rs 1.83 Lakh

Hyderabad Rs 1.46 Lakh

Table xyz reveals the per capita income of five cities in 2014-2015. In order to show high the

real estate prices are we will divide the entries of table xyz to table xyz to figure out how many

years of current income is needed to buy a flat in a particular city. The results are extremely

interesting and it speaks a lot about the real estate sector.

Table 1.5

City Years of Savings to buy a home

Mumbai Metropolitan Region 68

National Capital Region 32.5

Bangalore 81.5

Pune 31.7

Hyderabad 51.4

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The table xyz shows the number of years a person need to save his income in order to purchase a

house in their respective cities. A person living in Bangalore will have to save for 81.5 years to

buy a house. The prices are not only unaffordable but unrealistic in any standard.

Further the sales data of real estate sector also paints the picture that the real estate prices are out

of reach of the common masses. People are not buying simply because they can‟t possibly afford

it. This becomes evident from the research report titled Indian Residential Market Preview; the

table is reproduced here in this study.

Table 1.6

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The research provides data for the above six cities and despite the huge number of unsold homes

the prices are increasing. The research makes it clear how homes have become totally

unaffordable across the country.

Homes are so expensive that it has led to a situation where the share of real estate sector to GDP

in India is very less as compared to majority of nations.

Table 1.7

The table xyz shows that countries like Thailand, Malaysia and Singapore are far ahead of us in

terms of their real estate sectors share to overall GDP.

Hence affordability is a major issue when it comes to Real Estate.

The housing debt to income ratio or debt-service ratio

Under this we will discuss in detail the ability of a borrower to service his/her debt on the basis

of his/her income.

One of the most used ratios to measure the ability of a buyer to service his or her debt is housing

debt to income ratio or debt-service ratio.

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According to RBI the monthly debt service amount should not cross 40% of the monthly income.

That is the EMI and other expenses that a borrower has to incur due to his/her loan should not

exceed 40% of his/her monthly income.

Let‟s say a person wants to purchase a house in Hyderabad and as mentioned earlier the average

price of a house in Hyderabad is 75 Lakhs. The individual has to put in a down payment of 20%

(15 lakhs)-mandatory and takes a home loan 60 Lakhs at 10% for 20 years. On this the EMI

would work out to be around Rs 57,900 per month. Now according to the norms this Rs 57,900

per month should be under the 40% bracket of the income of the borrower. Hence to get a loan of

60 lakhs a person has to make a minimum of 144750 per month which is close the average

annual income of a person living in Hyderabad. Hence the inventories are not going to be sold

soon till the house prices crashes as was the case in USA or China. The prices are not crashing as

long as black money is there in the real estate sector. The moment it gets over the bubble is

bound to burst.

The Housing rent measure

One of the key concepts in housing rent measure is the rental yields. Gross rental yield = (Annual

rental income / Property value) x 100. In India the rental yields are totally out of whack.

According to magic bricks the average rental yields of major cities are in between 2-3. Table

Xyz shows the rental yields of 7 major cities in India

Table 1.8

City Rental Yield (%)

Delhi 2.76

Mumbai 2.55

Bengaluru 3.68

Pune 2.79

Chennai 3.16

Kolkata 3.86

Hyderabad 3.71

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If the real estate sector was correctly priced the rental yield should at least be somewhere close to

the borrowing rate of around 10%. Instead, Delhi for example has a yield of only 2.76% when

the borrowing rate is around 10%.

Table 1.9

China which recently had a huge real estate bubble has better rental yield than India. In fact table

xyz shows that the difference between the interest rates in which the money can be borrowed and

the rental yield is one of the highest in India. Currently a home loan can be borrowed at around

10% and the rental yield is 2%, a difference of 8%.

As the Firstpost editor R Jagannathan wrote in a column in November 2014: “In India,

borrowing costs for home loans are around 10.5-11 percent currently – when rental yields are a

fourth of that level. If rental yields in India have to catch up with those in New York and

London, Indian property rates have to fall by a third to a half as rents are not going to go 6 times

in future because there is a lot of unsold inventory and hence there is no real scarcity of houses in

the market.

Housing price indices

The most preferred ratio in the housing price indices is the house price to income ratio. Its

highest in India as compared to most of the countries. The house price to income ratio is the ratio

of cost of a housing unit of 100 meters, compared to countries GDP per capita.

The formula is: (Price per square meter / GDP per capita)*100.

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Table 1.10

Source: IMFs GDP per Capita figures

As is evident from the table xyz that the house price to income ratio in India is more than double

the second highest which is Cambodia with 283.37 x points. The ratio shows that the prices of

the real estate properties are extremely high from the reach of the common people.

It is important to note here that the government of India has recently come up with the housing

Index which is called the Residex but it‟s still not available on the web. The moment it gets

online it would be easier for the consumers and investors to understand the overall health of the

sector.

Apart from the newly launched housing index- Residex is still not available online yet- all other

major measures clearly indicates that the real estate prices are highly unsustainable and is bound

to come down triggering a bubble burst.

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3.5 Criticality of the Task

The task of identifying a bubble in the real estate sector is very much critical for the overall

industry and other associated industries as well. As discussed in the introduction section of

chapter 3 the rent yield can‟t continue to remain out of proportion for a longer period of time.

For it to come close to proportion, either the rents need to increase or the house prices need to

decrease. Given the unsold inventory right now, it is highly unlikely that the rents will rise and

hence the chances of falling property prices are significantly higher.

Further there is another big problem. The real estate bubbles are seen as a trigger of credit bubble

as well because property owner generally use borrowed money to purchase property in the form











From all the studies such as housing affordability measure, housing debt measure, housing

ownership and rent measure and housing price indices we have studied in detail that the housing

sector in India is definitely at a speculative bubble as the prices are very high but no restructuring

of pricing is going to happen soon.

At this point we can say that the bubble in the real estate sector can trigger a credit bubble as

well and hence the task of this study is critical for not only the sector but the economy and

finance of this country. Also due to the poor performance of the rating agencies in the west and

in some other countries we can‟t blindly rely on the rating agencies as they already have lost

their credibility during the subprime loan crisis in the United States and there is no guarantee that

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it can‟t happen in India. During the subprime crisis a staggering proportion of debts were rated

AAA, when in fact they were junk. The story goes that the Lehman Brothers and AIG‟s were

rated safe by Fitch days before they went burst. The problem here is that the rating agencies are

funded by the very companies that they rate.

Hence this study becomes much more critical for the investors and the real estate companies.

This study has calculated the risk based on the housing market indicators. Housing market

indicators are basis on which the bubbles can be identified. Economists around the world uses

market indicators specially the affordability measures. For any sector to exist it should have

demand. Demand exists when the prices are under the purchasing power of the Individuals.

Hence the task of the project is critical to the sustainability of the economy as a whole.

3.6 Conclusion

Currently the real estate sector is booming as India is growing at the rate of close to 8%. As per

the analysis of this project there is a speculative bubble in the real estate sector specifically

because the money is coming into the sector from the person with wherewithal and from the

black economy. Real estate sector is absorbing a lot of black money as of now but the

phenomena will not last long as this Ponzi scheme of builders paying off their loans using fresh

loans in the name of new projects can‟t sustain for a longer period of time. All Ponzi schemes

have a timeline and the bubble will definitely burst when the builders and person with vested

interests will run out of money to fuel the Ponzi scheme. But the only question is how long can it

sustain. Given the size of the country and the sheer volume of homes that we need it‟s hard to

predict the bubble but one cannot deny the fact that there is a speculative bubble in the real estate

sector as the prices are not under the reach of majority of the people.

Note: A Ponzi scheme is a scheme in which the interest on the previous loan is paid back by

taking fresh loans.

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Chapter 4 LEARNING OUTCOMES

4.1 Comprehension of the Task

This report describes what‟s happening in the real estate sector, specifically the housing sector

and hence it becomes important to comprehend the techniques used in various calculations to

reach to the conclusion. The task so performed concludes that there is a bubble in the real estate

sector but the question that remains unsolved is, when will the bubble burst in the near future?

The overall comprehension of the task is as follows.

The task of this project was to figure out the bubble in the real estate sector and we have

comprehended that there is a bubble as the prices have skyrocketed. Despite of having

inventories as high as 5 years in cities like Delhi the prices are not coming down. Various

measures have been used like the rent yield in India is only 2% whereas the borrowing is at

around 10% and hence the difference is too high in almost all the major cities in India. The

housing price indices such as housing price to income ratio is close to 650 in India which is more

than twice the second highest figure which is close to 300. The housing prices in India are highly

unsustainable and are bound to burst sooner or later.

4.2 Problems faced during Accomplishment of the Task

The availability of relevant data in India is very scanty as of now as the focus on the industry is

somehow new. Since the real estate sector is contributing approximately 10% to the GDP, hence

it becomes increasingly important for the country to have important statistics available on the

web.

The calculations so made in this report are somehow understated as the per capita income of

some of the cities was not available. Recent data of almost all the cities was not available and

hence a 10% increase in per capita income is assumed to do the relevant calculations. The data

for Delhi Capital region and Mumbai were not made available by the state level economic

surveys and hence for Delhi capital region the per capita income of Delhi area has been used, on

the other hand the per capita income of Mumbai and Thane has been used to calculate the per

capita income of Mumbai. Further the rental yield data is also not available apart from the major

cities in India and hence the rental yield has been supposed to be the average of all the seven

cities that has been used in calculating the overall yield which is in between 2 & 3.

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Further due to the unavailability of data the following calculations couldn‟t be made.

















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4.3 Methods adopted to solve the Problems

A mixture of literature, mathematics and statistics is generally used by the economists to

speculate a bubble in any market and hence the methodology of this study is also a mixture of

literature, mathematics and statistics.

Literature: A speculation is something that we talk about by measuring various relevant

parameters of a sector. This report has used the methods that are being largely spoken by

economists like Satyajit Das, Vivek Kaul and Josef Stieglitz. The genesis of this study has been

founded by the books and columns written by the above authors along with the methods adopted

by various economists around the globe to spot a bubble in the market. Due to the unavailability

of data in India, this report has restricted itself to housing affordability measure, housing debt

measure, housing ownership and rent measure and housing price indices.

Mathematics: Calculations like per capita income by adjusting the inflation, rent yield of various

cities, weighted average price of a flat in various cities, years of savings to buy a home, %

increase in the prices of flats in various cities and months of unsold inventories have been made

to further calculate the relevant ratios.

Statistics: This report uses the following statistical measures to spot a bubble in the real estate

sector:

Price to Income Ratio =

The housing debt to income ratio =

Gross rental yield=

Median ratio of free market price for housing unit

Median of household annual income

Total recurring monthly debt

Gross monthly income

Annual rental income * 100

Property Value

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Also the Housing affordability measure, housing debt measure, housing ownership and rent

measure and housing price indices have been used. At the end the available housing index has

been used to speculate the bubble in the real estate sector

4.4 Overall Learning from the Task

From the results of the calculations it is at least evident that there is already a bubble in the real

estate market because the prices of the properties have sky rocketed and has gone out of the

reach of the common masses. The Indian real estate market has the lowest rent yield, highest

price to income ratio and housing index is also not anywhere close to even china which has seen

a huge housing bubble in the recent past. The impending bubble can have a huge impact on the

overall financial stability of the whole economy as well. The possibility of a credit bubble is very

high in India as the real estate sector contributes approximately 10% to the GDP and hence a

bubble in the real estate sector can have significant impact on the banking sector as well. The

most important learning out of the whole task is the fact that the real estate sector is already in

the bubble but the sector is backed by the black money and easy money in the form of foreign

investment. The person with wherewithal, crony capitalists and black money is keeping the

money flow into the real estate sector; the moment money runs out from this sector the prices are

bound to crash as the business is not sustainable in itself. Further it can be concluded from the

overall study that the investors should take the ratings of the ratings agencies with the pinch of a

salt because they have already lost credibility during the subprime loan crisis in the United

States. More than the ratings investors should rely on the economic parameters like affordability,

rent, yield and other relevant measures used in this study.

Hence the key learning‟s from the task is the fact that the speculations about bubble in the real

estate market is right as according to the measures but when the bubble is going to burst is the

real question that needs more attention at this point of time. Also the learning‟s include the

measures that the government should take in order to have a control on the impending bubble

burst in the near or late future.

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4.5 Conclusion

After the number crunching and various statistical measures we can safely conclude that there is

a bubble in the real estate sector and hence it can trigger a credit bubble as well. The real estate

bubble with a share of 10% to the GDP will definitely have an impact on the credit market

because property owner generally use borrowed money to purchase property in the form of

mortgages. When the prices increase the property owner feels rich and further borrows to









lending. It constitutes the proximate cause of subsequent economic slump leading to a credit

bubble.

The question at hand is when will the bubble burst?

As discussed in the report the prices are not coming down simply because of the inflow of

money in the sector from the investors, government and people with wherewithal and black

money. The moment money inflow stops the prices are bound to fall given the large amount of

Inventory.

Hence we can conclude that since India is a big country it will take a long time for the market of

real estate sector to consolidate. Till than the prices will be high, the bubble will be there and the

sector will continue to boom at least at a lower rate than it is today.

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Chapter 5 RECOMMENDATIONS

5.1 Brief Description of Recommendations

The housing sector contributes around 10% to the economy and hence plays an important role.

As discussed in this study, a housing bubble can trigger a credit bubble and can have significant

impact on the demand and economic growth. Bubble bursts in some western countries along with

the recent housing bubble in china are classic cases of a real estate bubble triggering the credit

bubble. The credit bubbles in those countries were so strong in nature that they are still

struggling to grow at a desired level even after several bail outs and huge quantitative easing in

the past several years. Some of the countries have inflated their balance sheet to such an extent

that it has become difficult for them to get out the debt trap. In a country like India where most

of the people use their lifetime savings to have a house the Indian government should have a

better control on the overall sector. There is a need of regulatory and supervisory body on the

housing sector both at states and center.

The housing price index released by NBH is not accessible to the general public as it reports

directly to the RBI whereas RBI releases the data. The data so released by the RBI and NBH are

not always similar as RBI takes the whole country into account. To bring more transparency

there is a need of single authority for the index in the housing sector as well. Further the NBH

should also provide the data to the masses. The NBH website is not accessible for a very long

period of time and hence there is a need of direct accessibility of data prepared by NBH.

The price of land is also increasing rapidly and most probably the reason behind the souring real

estate prices. Since land plays an important role in the cost and hence a separate land index is

needed for transparency in the land prices.

Institutional credit to the housing sector plays an important role and hence the credits are

required to be at par with other developing nations.

The prices are not coming down simply because there is a lot of black money invested in the real

estate sector. Over the years it has become a way for many Indians to hide their black money or

in fact turn their black money to white money by investing in the real estate sector. The

government has to formulate policies to restrict this kind of transactions.

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While preparing this report one of the fundamental problem was the unavailability of relevant

data in real estate sector. Apart from the housing index data there are many ratios that can‟t be

calculated because of the unavailability of data. In order to study the bubble in the real estate

sector in details further studies in the real estate sector is hugely needed.

This report also recommends conducting comparative research on the real estate sector with the

real estate sectors of other nations like china, US, UK and Australia to have a deeper insight into

the overall sector.

Lastly, insight from the studies of the other countries in the housing bubble is highly

recommended as the measures so used in spotting bubble in the real estate sector in other

countries will be helpful to spot the impending bubble in India.

5.2 Details of Each Recommendation, Discussion of Its Technical Suitability, Economic

Justification and Feasibility of Implementation.

Regulatory and supervisory body on the housing sector both at states and center is important

because in India the safety of Individuals become much more imperative from the perspective of

finance as they are highly savings dependent and hence they use mostly their hard earned money

and savings to invest in the real estate sector. If there won‟t be any regulatory body the

transactions in the housing sector is not going to be transparent and hence the prices will remain

as high as today because the black money will still get into the sector debarring the common

people to have houses in India. There should be standard rules and regulations across the board

and among the real estate players along with standardization of the products offered by the

housing sector to avoid confusion and ease of accessibility. Housing, being a state subject, there

is a need to make and strengthen the new and existing laws, preferably, at the state level. Thus,

this would also imply that there is a need for a regulatory and supervisory body on housing

sector both at the Center and States.

Technically it‟s suitable for the overall economy as the regulations play an important role in

checking the overall market performance. Since real estate prices are already out of the reach of

the normal people and hence it‟s technically very much important for the country to have the

measures and regulation in place at the earliest.

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Economically the regulations will not be a burden as the government already has the concerned

authorities in place and it won‟t cost much for the government to make them functional for the

overall growth of the economy. It is also highly recommended here that the government should

focus in the digitization of the whole sector as it will bring transparency in the transactions along

with the capture of data at the time of transactions just like what Wal-Mart has done using the

data so captured at the Point Of Sale (POS).

Implementation of regulations is highly feasible as the government is not required to invest much

on this front. All the authorities are already there except the digital services. What government

needs to do is to revamp the authorities and pressurize them to work.

The housing price index in India is full of ambiguity and it‟s not available to the public as well.

The NBH, which prepares the housing index reports to the RBI and then the RBI releases the

data of the whole country which is not even similar to the data released by the NBH. No one can

challenge the calculations of NBH as they are not responsible for any data errors. It is highly

recommended to have a separate authority for the housing index in India. The index should be

available to the investors and masses for taking decisions.

Technically the housing index is the most important measure for checking the overall movement

of the sector. It should function like the inflation indexes such as the consumer price index. In

India no one can possibly debate on the health of the real estate sector as the housing index is not

available in the first hand. It is highly recommended to have a single housing index in the

country.

Economically the housing Index is very much justified as it tracks the movement of the sector.

It‟s just like the Indexes we have for the stock market.

Movement in the land prices also impacts the overall price of the properties and hence a separate

land index should be established. The housing index do capture the land prices too but a separate

data related to the prices of land is needed in a country like India where land issues are common

and land prices are way too complex than the housing.

Economically it will require the modernization of land records and property registration. It will

also require to revamp the mapping and ownership details. Digitizing the mapping and

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ownership details can help economically but the issues related to lands come under the

jurisdiction of state governments and hence there should be a close coordination between the

center and state.

Technically the land index will bring transparency in the whole system as all other rights related

to land such a leasing period, property rights and real estate regulations can be clubbed in the

index.

Implementation of land index is highly feasible as the same authorities responsible for the

housing index can carry out another separate study specifically on land. This will greatly help

bring transparency in the system.

Institutional credit to the housing sector plays an important role given the size and contribution

of the sector to the GDP. It is highly recommended to have robust credit flow in the system for

the sector to develop faster than today. There are a couple of issues here in the credit sector and

the government has to work upon those issues to bring the prices under control. The bubble like

situations arises mainly because of the loose credit policies. The people with wherewithal and

crony capitalists get easy credit from the public sector banks thereby inflating the prices of the

properties. It is highly recommended to clean the system as soon as possible and then bring in

transparency in the credit system to have a robust real estate economy.

Technically it‟s the credits that run the real estate sector. The investments are so huge and the

scale is so large that it becomes necessity to have a robust credit facility. The real estate sector

exists because of the credit from the banks and foreign institutions.

Economically Institutional credit to the housing sector is the back bone without it the sector can‟t

grow as real estate investments are long term investments and hence requires long term credits.

The whole economy of the real estate sector is dependent over the credit facility available to

them.

Implementation of a robust credit facility is a humongous task and it is the strength of the

institutions that provides credits on which the development of a country relies. All the developed

countries have robust credit institutions and hence they are largely a debt economy.

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The feasibility of being a debt economy with robust credit mechanism is debatable from the

perspective of the current health of the developed nations but to get there India needs to have

strong financial institutions to facilitate the growth despite of having low demand or sky rocketed

prices. It‟s the balance between the government and business along with the financial institutions

that finally decides whether there will be a bubble in the market or not. Excessive lending or

credit can trigger the bubble and hence too much of credit without regulations is not feasible in

the long run as is the case with US and Japan.

Black money is one of the major contributor to the Ponzi scheme that is being run by the real

estate organizations. The money from the crony capitalists and other people with wherewithal are

going into the real estate sector which in turn is keeps the prices intact. The moment flow of

money stops in the real estate sector the prices are bound to fall.

Technically the investment of black money in the economy can be slashed by strict regulations

and keeping a tab on the transactions. It is very much important for the Indian economy to have

control over the black money as the prices have become unaffordable mainly because of the

black money.

Black money has wide economic implications as it threatens the existing economy by running

parallel to it. If the real economy need to grow the black economy should be curbed as black

economy doesn‟t provide a level playing field for all the participants. Also since the prices are

not coming down and money is flowing in the real estate sector thorough black economy the

bubble o formed will be there in the market for a very long period of time which will eventually

have major economic and financial consequences in the future. It should also be kept in mind

that the real estate sector triggers credit bubble and hence the finances of the economy can be

severely hit if the bubble survives for a longer period of time.

It‟s highly feasible for the economy to keep a tab on the black economy as it speaks volumes

about the efficiency of the income tax department and also the sources of the income of people in

the country. The implementation is again a humongous task for the government as it requires a

lot of efforts and regulations. But at the end to have a real economy better than the parallel

economy it is highly recommended to curb the black economy.

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There is a lot of research opportunities in the field of real estate in India as most of the vital

statistics are not available as of now. The index that India has is also not available to the people

and investors. The data from RBI only releases every quarter and hence real time tracking of the

movements is not done as the stock market of India. To capture the bubble in great details the

country has to conduct a variety of research in this field. Apart from the metros and other more

populated regions the data should also come from the tier 3 cities for better understanding of the

problem. To reach to the solution the problem should be defined first and that can only happen if

there will be more data crunching in the field of real estate in India. Further there should also be

comparative studies between the housing market of India and other countries for better

understanding of the health of the overall sector. For example few economists has predicted the

housing bubble of South Korea by comparing it with the housing bubble in Japan. Similarly

housing bubble in a particular city can also be spotted by comparing it the housing bubble in

other cities. A lot of research and studies are required to be done on the real estate sector in

India.

Technically studies on the housing sector will lead to spotting of the bubbles and hence it is very

much important for any economy. The bubble can only be spotted if we study the market. Since

real estate is contributing 10% to the GDP hence it should be studied like the other major sectors

of the economy.

The studies and research on the housing and real estate sector has solid economic justification as

real estate sector is a major indicator of the overall economy when its share is 10% of the total

GDP. Through various studies the economists can get an insight of the overall economy and can

frame policies accordingly.

Research and studies are fundamental to development and India has a huge population of

youngsters who are well educated and hence it is economically and otherwise feasible for India

to conduct independent and joint research.

Lastly, insight from the studies of the other countries in the housing bubble is highly

recommended as the measures so used in spotting bubble in the real estate sector in other

countries will be helpful to spot the impending bubble in India.

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5.3 Suggested Scheme of Implementation, Precautions and Monitoring Systems

The regulatory and supervisory body can be implemented in India by making it a new regulatory

wing under government of India. The government has already come up with India‟s Real Estate

(Regulation and Development) Act 2016 to increase transparency and improving accountability.

Under this act Government of India will establish a Real Estate Regulatory Authority (“RERA”)

within a year of the Act‟s commencement in order to facilitate the growth and promotion of a

healthy, transparent, efficient and competitive real estate sector. The Act also creates a Real Estate

Appellate Tribunal to hear appeals originating from RERA decisions, directions and orders. The

Tribunal has powers to pass such orders as it thinks fit in response to an appeal of a RERA decision,

with the appellant having the opportunity to file a further appeal with the High Court if aggrieved by

a decision of the Tribunal. Hence so far the government has already been working on this front and

everything seems to be going great so far.

Further the real estate sector is booming and is bound to cross USD 1 trillion mark by 2025 and

hence precautions should be taken in the implementation of the regulations so that it shouldn‟t

become a bottle neck in the booming sector. Ease of doing business along with strict regulations

should be followed. The honest capitalists should be given the opportunity to leverage the booming

market along with weeding out the crony capitalists from the sector. With a balanced approach the

sector can grow at an unprecedented rate given the demand it has in the economy.

Digitization is the only way that we have at hand to monitor the system. The government of India

should focus in the digital India scheme to have enough of information in the real estate sector. Data

generated in each transactions can transform the whole sector along with bringing transparency to the

system. Hence digitization along with a monitoring wing at the back office is the way to monitor the

regulations so implemented. It is highly recommended that all the transactions should be made online

or through direct bank transfers. Since the transactions range is very high hence its practically

impossible to have buyers who have no internet access. In this day and age the government should

focus on increased digitization to capture the data at the point of sale. The whole statistics and

indices can be automated only if the online transactions are made compulsory. Hence monitoring the

implementations becomes fully automated if the system gets fully digitized.

The housing price index and the proposed land price index can be implemented by the NBH .

Precautions should be taken during the calculations and while taking the sample- tier 3 cities should

also be included. The housing price index can be monitored by the RBI itself.

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Institutional credit can be implemented by strengthening the banking sector in India. The banking

sector in India is in a huge mess as the NPA‟s of public sector banks in India is way too high. Most

of the banks are running out of money and a huge amount of money is required in the economy. The

banking sector needs approximately 1.8 lakh crores as of now but the GOI has flushed only 24

thousand crores to the public sector banks. The fresh lending‟s to the real estate sector is at an all-

time low. Hence to strengthen the institutional credit the institutions are required to be strong but

that‟s not the case in India. Indian banks are bleeding and are waiting for fresh inflow of money from

the government. The government has to figure a way out. The real question we have as of now is

whether we can go the zero interest rate way or not. The government needs to decide whether India is

ready to follow the Abenomics or not.

Development of a country is a game of finance and hence a lot of precautionary measures are

required to strengthen the overall financial system. The precaution recommended for the credit

institutions is the balance between development and inflation. As long as the inflation and real return

on investments are intact there should not be any problem with the credits.

Like all the developed countries the monitoring of financial institutions are in the hands of the central

bank and hence RBI‟s role in the overall strengthening of the financial sector is crucial. Monitoring

methods of RBI is not a subject matter of this report.

The government of India can strengthen the housing related institutions like NBH and RBI housing

unit by implementing new regulations as discussed in the regulations of housing sector. The same

can be monitored by RBI. Monitoring methods of RBI is not a subject matter of this report.

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5.4 Conclusion

Given the size and growth of the overall sector there is a lot of room for improvements. The

sector is in its nascent stage in India and is bound to grow at an unprecedented rate only if the

boom in real estate sector sustains for a longer period of time. Mathematically there is only one

factor that can stop the growth in the sector and that factor is a bubble burst. It is very unlikely

that the bubble so formed in the real estate sector will burst as the government is already working

on the mess in the sector. To save the economy from the real estate bubble and an impending

credit bubble there should be a robust regulatory body to regularize the sector along with the

availability of relevant indexes to check the movement of the sector. Also the institutional credits

are required to be strengthening to sustain and continue the growth of the sector. The major

problem with credit is inflation and hence the government is required to figure out a balance

between the two. Parallel to the economy there is a black economy in our country that has huge

impact on the housing sector and hence black money should be curbed by implementing various

measures like mandatory online transactions in the housing sector. Another milestone in the

housing sector is the act of strengthening the housing related institutions like NHB. At last a lot

of research is required in the field of real estate and housing to fully understand and comprehend

the trends and bubbles in the market. To be more proactive and on the safer side, comparative

studies can also be done to spot a bubble in the market.

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Chapter 6 CONCLUDING REMARKS

6.1 Summary

A speculative bubble in housing sector is a trade in „house asset‟ at a price or price range that

strongly deviates from the corresponding „house assets‟ intrinsic value. It‟s a rapid increase in

market price of housing until it reaches unsustainable levels then decline in a bubble. As per the

calculations of this report the housing prices are way more than its intrinsic value as the housing

price to income ratio in India is 647.88x. Further it will take approximately 30-82 years of

savings- depending upon different cities average income and average price of the flats- in India

to purchase a house.

The share of real estate sector to the GDP of India is one of the lowest among other countries. It

is important to note that the average income of a household is not sufficient enough to take a loan

of an amount close to average price of the flats. The monthly EMI on a loan of average price of

the flat-say 75 lakhs in Hyderabad- in any area is close to the average annual income of that area.

Hence on an average it will take savings of an entire year for an average household just to pay a

month‟s EMI. The rental yield of Indian real estate properties is well below the cost of

borrowing. At 2% the rental yield is one of the lowest in any country in the world. The difference

between the cost of borrowing and rental yield is 8% in India. Due to the rising prices it‟s

becoming increasingly difficult for the real estate companies to sell their unsold inventories. The

unsold inventories are as high as 5 years in cities like Delhi and Bangalore. The single index on

housing prepared by NHB is also not available to the public in general and hence it becomes

difficult to track the movements of price in the sector.

Hence it can be concluded that there is a bubble in the real estate sector as of now but the real

question is, when will the bubble burst?

Considering the present scenario and the availability of black money to the real estate sector in

India the bubble is not going to burst anytime soon, but it will burst if the market continues to get

out of the reach of the common masses. If it continues to get out of the reach of the common

masses there will come a time when easy money from different sources be it from person with

wherewithal or from the black economy will run out and the bubble will burst when the money

runs out from the system.

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Also it is important to understand that real estate bubbles are seen as a trigger of credit bubble as

well, because property owners generally use borrowed money to purchase property in the form









increasing pressure on the banking sector. The NPAs increases and the banks start to restrict


It can be safely concluded that the real estate sector is in a bubble like situation with a potential

to trigger a credit bubble as well, but the bubble is not going to burst anytime soon because of the

flow of money into the sector from various sources. The bubble is bound to burst if no corrective

measures are going to be taken by the government of India to tackle the black economy.

Strengthening of rules and regulations, proper monitoring of the sector and taking control of the

prices are the only way to deflate the bubble in the real estate sector.

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6.2 Gains from the Project

From the analysis it is evident that the price of the real estate sector is out of the reach of the

common masses. Because of the flow of money from various sectors the prices are not coming

down anytime soon and hence the bubble is bound to inflate if no measures are taken. It is also

evident that the property rent yield is very low in India as it barely covers the borrowing costs.

Further there is an impending chance of a credit bubble because of the real estate bubble.

The credit ratings of the real estate organizations should be taken with a pinch of salt as the

rating agencies have already lost their credibility in the 2008 global financial crisis and hence it

is recommended to rely more on the housing market indicators which is exhaustively been used

in this report- findings speak that the prices are extremely inflated and not sustainable for a

longer period of time and hence the prices are bound to crash, but the only question that needs to

be studied is when?

To deflate the bubble the government should install regulatory bodies along with cleaning the

mess in the banking sector. India has 29 public sector banks which are highly inefficient in

covering the loans as NPAs are very high in the public sector banks.

Hence the project explains in details how the real estate prices are inflated and how other

housing measures such as rental yield and debt to income ratio concludes the mess in the housing

sector. The study further advocates an impending credit bubble that can have major economic

and financial consequences. At last the project speaks about the mess in the banking and other

financial institutions in details.

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6.3 Limitations of the Project

Lack of available and reliable data

The calculations so made in this report are somehow understated as the per capita income of

some of the cities was not available. Recent data of almost all the cities was not available and

hence a 10% increase in per capita income is assumed to do the relevant calculations. The data

for Delhi Capital region and Mumbai were not made available by the state level economic

surveys and hence for Delhi capital region the per capita income of Delhi area has been used, on

the other hand the per capita income of Mumbai and Thane has been used to calculate the per

capita income of Mumbai. Further the rental yield data is also not available apart from the major

cities in India and hence the rental yield has been supposed to be the average of all the seven

cities that has been used in calculating the overall yield which is in between 2 & 3.






Lack of prior research and studies on the topic

There has not been much of research on the mess in the housing sector in India and hence this

report is exploratory in nature where self-reported data has also been used on the face value. The

data has been sourced from the columns of economists, independents writers and discussion

forums.

Methods used to reach to the conclusion

The methods used couldn‟t be exhaustive due to the unavailability of data and hence the

following calculations couldn‟t be made.





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calculations.

Fluency in language

Due to the unavailability of relevant studies in the Real estate sector of India this report has

referred to studies done by Chinese government officials. This report has relied on the machine

translated version of the Chinese reports on the real estate sector and hence there can a

possibility of misinterpretation.

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6.4 Scope for Further Work

The real estate sector doesn‟t have a functioning index despite being 10% contributor to the GDP

of the country. There is a huge scope of further work in this area as the sector is newly formed in

India and is bound to grow at an unprecedented rate. Vital data and statistics are yet not available

and hence availability of data across the country and then figuring out the relevant ratios from

the data is a humongous task and can be done over a period of time. Research can be done on all

the cities in India and then the insights from all the city research can be clubbed to prepare a

country wide research. Given the size of our country, cities in India are as big as some small

countries and independent studies at state level can have significant impact on the overall

transparency of the sector.

Further there is a huge scope of comparative studies in India such as city to city wise

comparison, state to state wise comparison and country to country wise comparison to have a

better understanding of the sector at large.

Research can also be done on the impact and relationship of the housing bubble to the overall

economy at large. Credit bubble so emerged from the real estate bubble can be studied in details

with the help of western countries.

India needs to replicate and follow the volumes of research work done in the field of real estate

in the countries which has suffered huge real estate bubbles like United States, Japan, Korea and

China.

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6.5 Conclusion

The housing sector in India plays an important role in the economy and any shock in the housing

sector can have significant impact on the overall consumption and demand in the economy.

Since the real estate sector contributes 10% to the GDP hence it becomes important for the

government to have control over the sector. In India lifetime savings are used to buy properties

and hence the government needs to be sensitive towards the policies of the sector.

According to the results of this report the speculation of the bubble in real estate sector is not a

myth but the real question lies in bursting of the bubble. Hence this report concludes that there is

a bubble in the real estate sector but how much time it will take for the bubble to burst is a real

question.

Further it can be said that the real estate properties have become completely out of the reach of

the common people as the prices are unaffordable for the majority of the population. The sector

has already become unsustainable given the prices of the properties. The rental yield of Indian

real estate is one of the lowest in the world and is bound to have overall impact if the bubble

bursts. All the measures used in this study indicate the bad state of the real estate sector. The

sector is highly ignored as the housing indexes are also not available to the end consumers.

It‟s clear from the results of this report that there is a bubble in the housing sector which in turn

can trigger a credit bubble as majority of the house owners are not common people who use their

hard earned money to buy properties but instead these are people with wherewithal who cook the

system to get loans for the properties thereby inflating the prices as a whole. It is important to

understand that the real estate bubbles are seen as a trigger of credit bubble as well, because

property owner generally use borrowed money to purchase property in the form of mortgages.

When the prices increase the property owner feels rich and further borrows to consume or make

money against the increased value of their property by taking out a home equity line of credit.

Borrowers speculate by buying property with borrowed money in the expectation that it will rise

in value but when the bubble bursts, the value of the property decrease but not the level of the

debt. The burden of repaying or defaulting on the loan further depresses the aggregate demand.

When the demand is low real estate inventory increases exponentially and they in return could

pay back the loans that they have taken from the bank. It‟s a situation when at a time a number of

individuals and organizations default creating an increasing pressure on the banking sector. The

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NPAs increases and the bank start to restrict lending. This whole process pushes the economy

into a recession as the demand crashes due to the crashing value of the real estate properties.

Hence it is concluded that there is a bubble in the housing sector which can trigger a credit

bubble as well, but the impending bubble is not going to burst anytime soon as there is a lot of

money flowing into the system thus keeping the bubble inflated.

11. References

Housing price changes retrieved from http://www.globalpropertyguide.com/Asia/India/price-

change-5-years

Real Estate bubble retrieved from https://en.wikipedia.org/wiki/Real_estate_bubble

Real estate prices retrieved from https://teekhapan.wordpress.com/page/5/?s=real+estate

Average income of people retrieved from https://teekhapan.wordpress.com/?s=tables+real+estate

Unsold inventory retrieved from https://teekhapan.wordpress.com/?s=unsold+inventory

Housing yield retrieved from http://www.globalpropertyguide.com/Asia/India

Index retrieved from http://www.globalpropertyguide.com/Asia/India/Price-History

Real Estate Industry overview retrieved from http://www.ibef.org/industry/real-estate-india.aspx

National Housing Bank, Annual Reports.

National Housing Bank, Report on Trend and Progress of Housing in India.

OECD (2005), “Recent House Price Developments: The Role of Fundamentals”, OECD

Economic Outlook 78.

Reserve Bank of India, Basic Statistical Returns of the Banks.

Sharma, M (2011), “The reality of the Indian Realty”, CREDAI Times.

Uhlig, H (2004),“What are the effects of monetary policy on output? Results from an agnostic

identification procedure”, Journal of Monetary Economics 52 (2005) 381 – 419.

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Banquet of Consequences by Satyajit das ISBN-13:9781760141714

Easy Money: Evolution of the Global Financial System to the Great Bubble Burst, Vivek Kaul

ISBN-13: 978-8132113430

The Great Divide - Unequal Societies and What We Can Do About Them, Joseph E. Stiglitz

ISBN-13: 978-0393248579

sip report sumit chatterjee- print copy

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