7-Year Property Cycle of India

The property cycle in India is long (7 years) and shows strength both in terms of amplitude and the length, either way. Indeed, in the past 20 years there has been one down cycle (1996-2002) wherein RE under performed most investment asset classes, notably CPI. Volume data for the same period isn’t available but evidence suggests it fell sharply. This was followed by a strong upcycle from 2003-2009 which was interfered by 1 year of GFC in 2008, thus carrying the upcycle well into in 2010. Volumes and price both went up manifold in the same period and RE probably outperformed most investment classes.

 It stands to reason that the down cycle that started in mid 2010 is now in its 6th year and 1 year likely away from its end. Strength on the downside again has been extreme with many industry veterans calling it the sharpest / most vicious down turn in history. Prices in many areas are down 10-25% and generally have underperformed CPI.

Rental yields in most markets in affordable housing are near mortgage level (on a post tax basis) – A situation that has not been there in the market since 2003. 97% of the buyers in the market are end users, suggesting investors are all but completely out (as per a Prop Tiger report).

Affordability as defined by Price to Income is one of the highest ever since 2009 across most markets- If one were to factor in the reduction in home loan rates and potentially higher tenure loans along with reduced unit sizes, the house price to mortgage payment ratio is the best since 2009.

Prices in general have lagged CPI and even general salary growth across markets over last 6 years. This likely has led to reduced investment demand but has also probably improved end user economics. We note that 1996-2003 prices also lagged inflation but made up for it in later years. Over a long cycle, property generally delivers inflation + 1-2% return

Developers incrementally aren’t buying land but forming JD / JVs to optimize capital return. Many companies that entered the market in 2006-07 are mostly out and looking to sell land. The earlier cycle has also followed some large profile near bankruptcy cases in the sector.