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Hard Times
Posted by Pradeep Sadanapalli | August 10, 2008 | 476 views
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Loading ...Second home-buyers and investors will also look at postponing their purchase decisions and thereby affect the overall demand scenario, he says. This can lead to a possible decline in property prices in the secondary market as the amount of distress sales and bank repossession would increase due to individuals’ inability to pay out their EMI’s.
The interest rates may further go up by at least half a percentage point to over 12% in October when the RBI reviews its credit policy.The main reason in increasing the interest rate is the current high inflation, which is hovering around 12%. As chances of inflation coming down by December are very low, banking sources said RBI would further tighten the money supply to kill the inflationary expectation.
But, this is likely to hit the real estate sector very badly. Because of the rise in the interest rate and inflation, the input cost has gone up substantially, which has forced builders to increase the prices of their builtup houses. CMD of Parsvnath Developer, Pradip Jain said that due to the increase in input cost by around 10% in the last one year, they had been forced to increase the cost of their product by around 5%.
Yet, at the same time, as the investors who had bought the property three years back at a lower prices, will like to sell even at lower than the prevailing prices. This might trigger the decline in the real estate prices in a couple of months, analysts aver.This will also force the other investors, who invested recently, to sell at a loss to get rid of paying EMIs on the loan they had taken to buy their house. This is likely to increase the supply and depress the price further.
Analysts feel that in the next couple of months correction in the prices should start. That will also be the time for the end users to enter the market to realise their dream of buying their sweet home. Builders are already offering attractive plans to lure endusers and investors to buy their products.
With increasing inflation and rising interest rates, the economy is also likely to slowdown. Companies’ profitability is already under stress. This has resulted in slower employment generation and lower pay hikes. All these phenomena put together will lead to lower affordability for the houses forcing the developers to defer the launch of any of their new projects.
In the short term, this will lead to correction in the prices. However, in the medium term, prices will go up. A senior merchant banker said that with the government endeavour, inflation is likely to be controlled in the next one year. That will also lead to lowering of the interest rate,which could lead to appreciation in the prices.
SOURCES:
Times Of India
Topics: Real Estate |
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