Just alike US housing market, Indian Realty market went through it highs starting 2003. In a span of two years, house prices in some of the metropolitan areas in India were doubled or tripled. But since the january sensex fall, Indian Realty sector was also in setback, be with the realty stocks or the housing prices. So can we say that Indian Realty boom was also a
housing bubble and some traits of
subprime lending is also in there. The question is little bit debatable, but as per my point of view Indian
real estate market is far from Subprime, though there were speculation in the market but still I believe that its not in Subprime lending.
Here are some observations to support my point. But before I move with my observation, some facts about
Subprime Crisis.
By Definition, Subprime lending generally refers to lending offered to those people who don't have required credit score.
Subprime Mortgage crisis did not only involves lending to risky customers, but it also involved beautification of these mortgages in tranches, which were afterwards sold to investors. This beautification techinque is known as securitization.
Securitization is a structured finance process where different assets are pooled together and offered as collateral to third party investments. The most common kind of securitzation assets are
MBS(Mortgage Backed Securites) and
CDO(Collateral Debt Obligations).
One more reason of Subprime Crisis is that most of the subprime loans were attached with adjustable rate mortgages (ARM). The most common type of ARM in US mortgage industry is 2/28 and 3/27. Most of the ARM comes with either very low initial rate, also known as teaser, or with no rate at all for first few years. But after some time, the teaser rates will be reset to be more realistic rates. With ARM most of the mortgage borrowers fall into lenders net, and borrowed loans which they never ever thought of.
Now, I will answer why the Indian Realty Market is not into Subprime.
1. First of most of the lending in India is done to prime lenders, I will not say there are no subprime lending , but the percentage of lending for houses are done to prime borrowers, with good
credit history.
2. No concept of teaser rates, though interest rates may differ from lender to lender, but all rates are governed by the rates defined by central bank .
3. There is nothing call as Securitzation exist in Indian Financial Market, though recently RBI have announced Securitzation of govt. bonds, but the concept is still in its nascent stage.
4. Even in 2003, when Indian housing boom started, the lending interest rate were somewhere around 7-9%, even difficult for a prime borrowers to borrow the money beyond its capacity.
5. One more reason of Subprime crisis and lower interest was that, US govt want to revive there economy after the Dotcom bubble, so they reduced the market interest rates from 6.5% to 1%, which caused a spurt of borrowing amoung americans, while in India no such action was ever taken by any of the govt. in 61 years of Independence.
Indian economy growth was more due to external factors like, more open market, infusion of investment both from Private and Institutional investors, raising of FDI in some of the key verticals.
So based on my observation, Indian realty was at its boon time, but it never in domestic subprime crisis.
Thanks&Regards,
Mohit
![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_s9wQgEb5m8LEzcT9x6KTDr4NVvAjkh_T6zua1_nKKEKz9o4nHxgjURyJDgH37jAI_rizTC9bTn5YRRh9PJGscZt3BPrE7nq3vTfbn5bhZPwKBNYP2KbbugwUgFpGxOPKVmKSAI7vc6jahNoFUWnefY=s0-d)
![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_vHhHgtdJjCaYOGUOA_M-z3E0reBYjyYq2jv6nhSOq94Lv46t1NJgJG_-zNl7-Ha1-dyiBGE1NlIUEaFlXvMvHkP5h2oTcxDLOaLRycyzC-0OIezwgRVFeVRNf35Ag1pOcQlRnezK5AtlKoH6CLLkBs=s0-d)
