The Sudden Surge - Jan 13, 2007. Times Property (Times of India)

The trend towards rising real estate prices is not a bubble, but a shoot-off of the boom in the country's economy, says Chetan Narain

Continuing from my last column on which way the prices are heading and what factors are pushing the prices up, here is my view keeping an outlook for 2007 and beyond.

With the current scenario the hike in property prices is being questioned and labelled as a bubble by many, and it becomes essential to understand what lies beneath this sudden surge. Especially in the past one year, the prices have gone up tremendously, even by 100 per cent or more in many cases. This has left a lot of residential buyers unsatisfied, especially first-time home buyers, as they don't get the benefit of the hike while selling a previous property. Also, the home loan rates have increased by almost two per cent.

However buyers need to understand that this trend is not a bubble but a shoot-off of the boom in the country's economy and the attention it is getting from the rest of the world. With India becoming the fourth largest economy, it is only but obvious that MNCs from all over the globe are now setting up in India. While other cities like Bangalore, Hyderabad, Pune still have spaces for development, Mumbai is facing the maximum pressure as the city lacks land supply and the demand is high in the financial hub.

With MNCs, the preference is towards buying properties that are located in prime locations as budgets are manageable for them but compromise on locations is not. This has led to shooting prices in areas like South Mumbai, Mid-town and other locations too.

Apart from this, today people are seeking to live not just in comfort but luxury. People are becoming highly conscious of their lifestyles. And when it comes to luxury, as the case has always been, no price can be termed as exorbitant as far as there is a buyer for it. In fact, it is the price that forms an important part of terming a product or service a luxury. It is not an over-statement but a fact that today buyers look not just for well-constructed projects but those that provide a minimum of two parking spaces per unit in a city that ideally cannot afford such extravagances. Also, with not just the concept of nuclear families, but people looking to stay by themselves apart from their families has triggered off a small but significant demand, which will only rise in the near future.

With a lot of focus being on improving Mumbai's infrastructure, standards of living in the city are definitely going to rise within the next three to five years. The rates have increased tremendously in locations that are on the thrust of an infrastructural makeover as self-sufficient and well-planned locations are every Mumbaikar's dream. For instance, Navi Mumbai is bound to become one of the most sought after destinations with the proposed developments of an international airport and development of two huge SEZ projects Maha-Mumbai and Navi Mumbai.

Most importantly, the highest demand is from investors: Local, Institutional and International investors through the Foreign direct investment route who are all willing to spend high amounts for that longterm profit based on return on Investment through rental incomes and silent capital appreciation based on futuristic predictions.

The current price levels are, in fact, controlling to some extent most of their demands and making them tread slowly, which would have otherwise led to further pressure on the market. Also, investors are not willing to sell, which has further increased the lack of supply. All in all, it is the current rate of demand and futuristic expectations from the city that are causing a severe hike which is not going to decline in the near future.