How will Indian real estate perform in 2014?

There is no doubt that the underlying dynamics for a very buoyant residential real estate market in India have been there for some time. There is no doubt that both domestic and international investors have recently shown great interest in the sector. However, after a fairly lacklustre end to 2013, how do you expect Indian property prices to perform in 2014?

When you take into account the size of India, the growing population and the changing dynamics, there is no doubt that there are very different opinions with regards to the short to medium-term prospects for the Indian real estate sector. So, what factors do you need to take into consideration when looking at Indian property?

Investors switching to residential property

There is growing evidence that despite the fact international investors, and domestic investors, seemed to target commercial property at the beginning of the Indian real estate boom, residential property is now more in demand. There are a number of reasons for this increase in demand for residential property, many elements of which are likely to continue for some time to come.

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Tightening of finance

While the Indian economy is expected to grow by 5% towards the end of 2013/14 this is well down on the boom times of recent years. Indeed the Reserve Bank of India is forecasting that inflation will end 2014 around 5.3%, which does seem fairly high, but is certainly a major improvement on the current level of 6.5%. As a consequence financial institutions are now limiting ready finance for the real estate sector although interestingly this has opened up other options.

Over the years, as you might expect in a boom real estate market, some developers overextend themselves on a financial basis and paid the price. Therefore, it is perhaps no surprise to learn that both international and domestic investors are now targeting partially completed developments which only require additional finance to get them over the finishing line. So, taking account of the lack of new developments and the relatively small number of partially finished developments this will likely help to maintain real estate prices in the short to medium term.

Growing middle class

The Indian and Chinese economies have performed extremely well over the last five years or so, especially in light of the US mortgage crisis which impacted the worldwide economy. There has been a slowdown in economic growth of late which has perhaps caused many economists to rein in their optimistic forecasts from just a few months ago. However, the long-term dynamics for the Indian real estate market are still there, the growing population, an expanding economy, increasing international investment as well as a middle-class which continues to grow even during these challenging economic times.

So, there is pent-up demand for long-term real estate property in India, the economy is starting to improve again and inflation is set to fall significantly which should all ensure a steady long-term progressive Indian real estate market. There may be ups and downs, there may be issues outside of the control of the Indian authorities but the dynamics required to expand the Indian residential real estate sector, as well as the commercial real estate sector, are certainly in place.