« Wells Fargo Dumps Maytas Hill County | Home | DLF, Unitech Following ‘Satyam’s’ Path? Credit Suisse Report Smells Something »
Market Wisdom: Is It The Right Time To Buy?
Posted by Pradeep Sadanapalli | January 27, 2009 | 645 views
(7 votes, average: 2 out of 5)
Loading ...Instead of waiting for prices to fall and enter the market at the lowest possible level, an end user should try to identify a suitable property and negotiate hard to buy it, says Prabhakar Sinha.
Will the real estate prices fall further? When will the revival in real estate sector begin? These are the key questions that everybody wants answers for. The buyer is waiting for prices to fall further, so that he may have a better bargain while purchasing his long cherished house. On the other hand, realtors are in dire straits as they are unable to sell their products.
The key issue in the purchase of a house is the affordability factor, which depends on both the price of property and the rate of financing. The realty prices have fallen by 20% to 30% in the last six months.Besides that, many realty firms have launched affordable houses at substantial discount over their earlier products in the same vicinity.
Following the slowdown in economy and consequent measures taken by RBI to infuse liquidity into the system, the interest rates have fallen by around 1.50 percentage points to around 10%. But, middle class endusers are finding it costly and unaffordable,even now.However, the general thinking in the market is that interest rate should fall to around 7% for any revival of the real estate sector.
If one borrows Rs 20 lakh for 20 years at 7%, his EMI will be Rs 15,500. But, if he borrows at the present rate of 10%, his EMI will be Rs 19,300. That means the end user will have to shell out 23% higher.For a middle class person,shelling out 25% more than what he can possibly do makes the proposition unaffordable.
As inflation is continuously falling and has already gone down to 5.24%, it is expected that interest rates will further fall. In fact, some banks like Citibank have predicted that inflation may become negative in July-September quarter. That means, in actual sense the prices will start falling. This will force banks to lower the lending rates sharply.
A senior developer said the government efforts to bring down interest rates remained effective only for the public sector banks. The private sector banks have still not cut interest rates. Their lending rates are still in the range of 11% to 12%. Last time, in 2003, when the real estate boom started, it was driven not only by low interest rate, in the region of 7-8%, but also on the easy availability of home loan.The easy availability of home loan was possible because of aggressive marketing done by ICICI Bank to sell its home loan products.
This time, though the government’s effort has goaded public sector banks into reducing their interest rates, private sector banks remain unmoved.But,if the interest rates fall because of the slowdown in the economic activities, the fall in interest rates will be all round, including the private sector banks.
But, again, if a loan will be easily available at lower interest rates, buyers will make a dash for the market to buy their sweet homes and this sudden surge in demand could lead to rise in prices. The prices of properties at good locations will appreciate faster.
Therefore, instead of waiting for prices to fall and enter market at the lowest possible level,an end user should try to identify a suitable property for himself and negotiate hard to buy it.The only precaution one must adopt is to avail loan at the floating rate of interest, so that when the rates fall, one could also benefit. Mind it, if you are buying a property six months ahead of the low interest rate, you will end up paying a small amount of around Rs 25,000 more on a Rs 20 lakh loan in the above example. But, you will have benefited in buying the most suitable house.
SOURCES:
Times Of India
Topics: Tips, Real Estate |
Comments
You must be logged in to post a comment.