Rising residential prices and interest rates have home buyers hanging on a loose rope, and sooner or later something is going to give. Anecdotal evidence suggests home buyers in metros are beginning to postpone home buying decisions. Finance companies are no longer comfortable giving out home loans, as the rapid hike in interest rates has led to the lengthening of instalment periods. Home loan firms are becoming wary of loans stretching beyond the retirement age of individuals, and have begun to ask select customers to increase the amount of their instalments, or even pre-pay and reduce loan tenures. All this suggests one can expect property prices to cool off in metros and mini-metros in the next 6-months, with residential prices in the near term seeing a correction of 20%, due to a slowdown in purchase of real estate properties. While, the affordability factor is making prospective buyers postpone buying decisions, investors are also expected to stay away due to the recent correction in the stock market. Both factors should reduce demand and correct prices over the medium term. Over the past one year, property prices on an average have risen by 30-35% and 60-70% in top metros like Mumbai, Delhi, Bangalore, Chennai and Hyderabad over the past two years. Hence, a house that cost Rs. 35-lakhs end-2004 in Mumbai may now cost Rs. 58-lakhs. And, with parking charges, stamp duty, society charges, etc. etc. an earlier Rs. 40-lakh house will cost Rs. 65-lakh now. Furthermore, the property prices in Delhi seem to have climbed on a steeper graph than Mumbai. A rise in interest rates has seen EMI's climbing 2530% in the past two years, while fixed rate loans have increased from 8% levels in 04-05 to around 10.5% today. That means, EMIs have risen from Rs. 800-per lakh for a 20-year loan to around Rs. 1,000-per lakh. In other words, a house which would have cost Rs. 35-lakh earlier and costs Rs. 58-lakh now, assuming it has 80% financing, the EMI two years ago would have been Rs. 22,400. Today, it stands at Rs. 46,400. With the property market ripe for correction, it is recommended buyers postpone buying a home, while investors had better watch out. Being patient will be well worth your while, as patience will pay off buyers, as growth in housing prices is slowing across the globe. According to a Knight Frank Global Report, average global housing prices growth is expected to slow down over the next 12-months. That will hold true for Indian real estate, as real estate prices may be expected to exhibit a weak trend in India. The Indian realty bubble may be just about to burst, home buying should be put off till property prices have stabilised and become more realistic! |
