Property investors who buy early love the idea of inflation hitting a particular market. It not only increases the price of the investments that they have made, but it also allows them to charge higher rent to the people who might be living in the properties they have invested in.
This is the type of attitude that many foreign property investors in a variety of Indian cities have had over the last few years as the Indian economy has begun to take off with the property market in tact. Foreign money was pouring into cities like Mumbai and property values rose accordingly, allowing many of the early investors into the city to lock in a very impressive return on their investment.
However, the situation has gotten to the point where the inflation might be very harmful to the real estate market in Mumbai over the long term. At present, the demand for property in Mumbai is expected to rise by over 50% in the upcoming year.
That type of demand would be fine if there was a corresponding increase in supply to keep the real estate market on a healthy growth curve, but there have been massive delays in construction of well over 70% of the planned buildings in Mumbai over the last couple of years. That type of delay can be catastrophic when those buildings are needed to deal with the increasing demand and this is ultimately what has analysts so worried about the fact that demand-based inflation might be in the middle double digit range by the end of 2008.
In fact, with the assumption that all current factors are going to follow along current trends, it is expected that property values in Mumbai will rise by about 50% over the coming year.