Similarities Between The Property Markets In India And The USA
According to a study by the Harvard University, real estate developers in the US have shown an unwillingness to engage in new projects purely on the basis of speculation, after the global slowdown of 2008 hit the world’s most powerful country badly, depleting the fortunes of those involved in businesses of all sorts, construction included. Today, new homes are fewer in the US, resulting in higher buying and renting costs. Come to think of it, the US is not much different from India, real estate-wise.
Affordability is an issue in India and the USA
Property is not cheap in any of these countries, partly because of limited supply. Developers in the US have restricted new construction because the economy happened to suffer because of speculative business in the past. In India, the launch of the real estate regulation Act in 2016 forced builders to complete their pending projects. To register a new project, developers need a variety of approvals under the provisions of the law. As a result of this, new launches continue to fall in this country too, leading to price appreciation, even if marginal.
Business plans are not focused on demand metrics
While the buyers are seeking affordable homes in these two countries, builders are constructing pricey units. The Joint Center for Housing Studies of Harvard University’s report reads: “The housing that is being built is intended primarily for the higher end of the market. The relative lack of smaller, more affordable new homes suggests that the rising costs of labor, land, and materials make it unprofitable to build for the middle market.”
In India, while majority of Indians are looking for affordable homes, (properties priced below Rs 45 lakhs), most units available for purchase in the market are priced between Rs 45-80 lakhs.
Price-to-income ratio is unbalanced
The price-to-income ratio in India has increased over the last four years, shows data available with the Reserve Bank of India. The Residential Asset Price Monitoring Survey says that the ratio increased from 56.1 in 2015 to 61.5 now. The story is not much different in the US.
“Conditions for would-be buyers vary widely across the country, with home values more than 5.0 times incomes in roughly one in seven metro areas (located primarily on the West Coast) compared with less than 3.0 times income in about one in three metros (located primarily in the Midwest and South),” says the Harvard report.
Mortgage is hard to get in the USA and India
Following the recession, lenders apply stringent checks before they offer credit to homebuyers in the US. With interest rates touching new highs in 2018, getting credit became even more difficult to people in that country.
A Housing.com study on the Indian government’s Pradhan Mantri Awas Yojana (PMAY) also reveals that credit is hard to get. Also, high interest rates make the purchase far from affordable.
Inventory pile up
Since buying is not cheap, unsold housing stock refuses to see much reduction in India as well as the US. Data show only 5.3 million existing units were sold last year in the US, as against 5.5 million in 2017. “The inventory of existing homes on the market increased at the end of 2018 for the first time since 2015, to 1.53 million units — a jump of 4.8 per cent from a year earlier,” notes the report. In India, real estate developers are sitting on an inventory stock of 797,623 units spread across nine major property markets, data available with PropTiger.com show.