Real estates prices likely to fall
According to experts, prices could come down 15-20% by June or July except for Mumbai or Delhi, where demand will continue to be high, reports Raju Sarkar.india Updated: Apr 04, 2007 01:26 IST
If rising interest rates have upset your plans to buy a house or a car, hold on and stop sulking. There could be an upside for you in this gloom. The house you plan to buy could be cheaper as real estate prices are likely to fall 15-20 per cent in the next six to nine months, with the few exceptions like Mumbai or Delhi.
"There will be some rationalisation, stagnation in real estate prices. Prices could come down 15-20 per cent by June or July except for Mumbai or Delhi, where demand will continue to be high," said Susil Dungerwal, a realty expert. Prices have already come down in places like Gurgaon or Mohali, near Chandigarh.
"As in the US, the transaction prices are lower than quoted prices. If you take an inflation of 6-7 per cent, and prices don’t increase, consumers would benefit," said Sandeep Kotak, business head (mortgages), Kotak Mahindra Bank.
"The price of property goes up nearly 20 per cent between from the plinth level to the completion stage. If prices remain flat, it’s a good proposition for consumers. Though demand is strong, expect the momentum to slowdown," added Kotak.
In the short term, builders may try to hold on to prices. Builders have the ability to hold onto their stocks for 3-6 months, but property prices will drop from the third quarter of this fiscal, say bankers. "It takes 3-6 months for an effect (of monetary policy) to take place," Aseem Dhru, business head (mortgages), HDFC Bank.
That’s because a home loan is a 2-3 months transaction. Consumers, who have committed to a transaction, will go through. "The rise in interest rates will cool off demand for housing loans, which will grow at 10-15 per cent as against 30 per cent last year. Home loans will slow down in Q2, which will reflect in property prices in Q3. We see a 10-15 drop in prices in this fiscal," added Dhru.
Developers though don’t see prices falling. "I don’t see prices falling," said leading builder Niranjan Hiranandani. "If you want to buy a property for yourself, buy today on a variable loan. The construction costs are going up; the more you procrastinate, the more you may end up paying," he added.
But bankers say consumers are already postponing their purchase—registration of new properties in New Bombay are down by a third, according to the registrar office in Vashi. When holding costs rise, builders will be forced to reduce prices. A 15-20 per cent drop in prices will more than offset the rising interest costs.
To attract buyers, builders will start throwing freebies like free modular kitchens, parking, stamp duty or gadgets—a few ads from builders for properties in distant suburbs have started appearing in Mumbai after a gap of couple of years.