Asset bubbles - Indian Real Estate Market

In a rational market, real estate rates could be linked to buying power of users and the investor interest. However in today's time, markets are exhibiting irrationality and are becoming very difficult to predict.

Capital flows into the emerging markets have been phenomenal. In the last six months over US $ 16 billion has flown into Indian stock markets. Further, there is talk that US $ 4 billion has flown into the real estate market. I believe that these heavy capital flows could destabilize the Indian market by creating asset bubbles across asset classes including real estate .

My concern is that this is not foreign direct investment, but money flowing because of a carry trade i.e., money being borrowed at a very low rate in the west and then being invested in the developing markets such as India. While markets growing at a moderate rate is good, but what we are witness to is irrational exuberance - beyond normal in the Indian stock markets and that will lead to a bubble. With an ear on the ground, builders locally have already started increasing prices, ahead of pick up in demand and in spite of steep reduction in input prices. I do wish that investors/builders will be more cautious and the asset bubbles will not touch the Indian property market this time around.