Owners of real estate expect real estate prices to go up and those planning to invest look for a correction. but what is forgotten is the value of real estate goes purely based on demand supply outpacing fundamental valuation techniques or parameters of Asset yield. Real estates is continuously getting priced with assumption of capital appreciation than actual yield which is distorting pries.
The article in the latest Economist well justifies the case of ballooning real estate in Mumbai.
A recent study by the IMF finds little evidence of housing bubbles in most Asian countries. Since 1999 house prices have risen more slowly than income in South Korea, Thailand and Hong Kong as well as China (see right-hand chart above).
In contrast, in America, house prices have risen three times as fast as real incomes. Standard Chartered, a bank, calculates that in relation to incomes, housing in South Korea, Taiwan, Hong Kong, Singapore and Thailand is now 37-58% more affordable than it was during the peaks of those markets in the 1990s.
Don’t buy in Mumbai
The only Asian country where a bubble leaps out from these charts is India, where average prices have risen by 16% a year over the past four years, well ahead of average income. It is the only country where house prices have surged by more than in America. In Bangalore and Mumbai prices doubled during 2005 and 2006.
According to Global Property Guide, a research firm, equivalent apartments in South Mumbai now cost three times more than in Shanghai, and not much less than in Tokyo—even though Indian incomes are much lower. Looking ahead the question is no longer whether, but by how much, prices will fall. Property prices in Mumbai and Bangalore have already started to slip this year as mortgage rates have increased sharply.
Elsewhere in Asia, expect home prices to keep climbing. The rest of the world is experiencing its biggest housing bubble in history: never before have real house-prices risen so fast in so many countries. But Asia has yet to join the party.