Real estate speculation is among the greatest macroeconomic risks that developing countries like India should watch out for. Episodes of economic growth and credit booms are invariably accompanied by real estate booms, especially in developing countries. And financial market deregulation only exacerbates the risks.
Joe Studwell's excellent book on Asia chronicles the South East Asian experience with real estate resource misallocation and how it adversely impacted economic growth and exposed those countries to macroeconomic instability from both internal and external sources.
Sample a few snippets from an FT article on India,
30 per cent of real estate projects and half of all built-up space in Mumbai is under litigation, according to a 2019 Brookings India report, with projects taking an average of eight and a half years to complete.
And this is only the latest in inventory pile-up that has been a feature of India's metro property market for years now,
Property consultancy Anarock estimates that half of the luxury real estate in Mumbai’s downtown alone is unsold: 11,000 properties worth a total Rs590bn... Unsold inventory in the city rose 14 per cent in the first half of 2019 from the same time a year earlier, according to Knight Frank.
And the role of shadow banks,
Shadow banks grew to account for a fifth of all new credit last year, and became the largest source of funding for real estate thanks to loan growth of more than 20 per cent a year between 2013 and 2018.
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