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Real estate prices under pressure

Buying a house? Hold on...for a while. The Reserve Bank of India’s move to raise repo rates (the rate at which the RBI lends money to banks) is likely to trigger a further dip in realty prices over the next few months.

india Updated: Jun 05, 2010 19:15 IST
Lalatendu Mishra

Buying a house? Hold on...for a while. The Reserve Bank of India’s move to raise repo rates (the rate at which the RBI lends money to banks) is likely to trigger a further dip in realty prices over the next few months.

Property prices have been stagnating due to falling demand and high interest rates. Home loans will become more expensive as hike in repo rates will push banks to go for an upward revision in interest rates.

Smaller property developers, who are hit by falling sales and liquidity problems, are expected to reduce prices in an attempt to bolster demand.

“We are heading for a major crisis. Prices have already crashed by 20 per cent. Nobody buys in a falling market expecting further correction. The repo rate will further aggravate the situation,” said Arvind Goyal, who heads Navi Mumbai-based real estate company Karnala Infra Projects. Navi Mumbai, the satellite city developed to decongest Mumbai, is witnessing a real estate boom with more than 800 projects under construction.

“Some of these projects are heading for a crisis due to lack of demand,” said Goyal who also heads Navi Mumbai Chamber of Housing Industry.

Big players, who are not mired in liquidity crisis, are not expecting further decline in prices. “The rise in repo rate will not have any impact on us. This is more to do with curbing inflation. Unless supply is improved, prices can’t soften,” said Rajiv Talwar, Executive director, DFL.

Akruti City Chairman and Managing Director Hemant Shah, while echoing the same sentiment, said, “The sluggishness will continue for next three months and after that the collective impact may be felt. The market will get a direction with prices either coming down or moving up.”

Smaller builders, especially in Mumbai, have started offering discounts to attract buyers. “There is a credit crunch and smaller developers may be in selling at discounts. We have to wait for the next three months for a conclusion,” said Shobhit Agarwal, joint managing director, Capital Markets, JLLM. The realty prices in Delhi and other national capital region (NCR) towns have witnessed a 'selective' correction in the last six months.