Indian real estate market went through a bull phase for the past five years. Share prices of real estate companies went through the roof giving unprecedented returns to investors. IPO’s of real estate companies were subscribed many times over and went for a hefty premium.
For the last about six months the situation has changed dramatically. The stock markets are drifting lower, US housing bubble has burst and the global economy is heading towards recession. All these factors have started taking their toll on the real estate market.
Causes for slow down in real estate market:
* Because of rising inflation banks are planning to raise interest rates further. This is going to make getting loans more difficult and expensive for the end users in real estate.
* During the bull phase of real estate, excess supply has been created by developers and builders to cash on the booming market. Now this excess supply is causing the prices to dip in real estate.
* At the international level slowdown in global economies and continuing write offs in the international banking system are making global investors bearish.
* Domestically, rising inflation, already high prices and losses incurred by investors in the stock market are adding to the negative sentiment.
* The number of buyers has gone down in the market across all levels. However, correction in the market may not be as sharp as the stock market.
* The local demand and supply equation, quality of the product and price levels will determine how much the local real estate prices are hit.
* Rates in some markets over the past two years reached excessively high levels and a reduction in these could benefit home buyers.
* Lease and rental returns on commercial property have gone down.
Stagnant prices:
The prices in the real estate market have indeed stagnated in the last six months. In many areas real estate prices have declined by 10 to 15 per cent and are expected to dip by a further 10 per cent across the country in the coming months.
In 2007, the State Bank of India witnessed a home loan portfolio growth rate of 16 per cent as compared to 20 per cent in 2006. This year there has not been any visible growth on the home loan front.
Property consultants say that property prices are still high and continue to remain unaffordable. In fact, instead of going up, sales have actually gone down by 20 to 30 per cent. This has forced some developers to dole out discounts - stamp duty relief, free parking and interiors - to boost sales.
Interest rates:
Since the rate of inflation is high, RBI has been forced to increase interest rates and the Cash Reserve Ratio (CRR). The tightening of the monetary policy by the RBI to reign in inflation has adverse affect on the real estate market as money supply gets curtailed.
Inflation woes:
Inflation too has begun to bite. Inflation levels are extremely high and this has made it costly for banks to raise funds.
There is already a slump in the real estate market. There is also a general scarcity of apartments in the market. New residential projects have slowed down. Only `big’ developers are launching new projects. Buyers are cautious as well.
Developers do not have adequate funds at their disposal to begin fresh co |
