Realtor revival linked to reduction in price

The double whammy of rising interest rates and unaffordable prices is a little too much for the prospective home buyer to weather and prices will have to come down for the market to revive, say experts.

For the record, the developers are still claiming a rise in input costs to be the major reason for higher property prices, which gives some a reason to believe prices won’t come down in a hurry.

“Real estate prices are not softening and they are slowing down purchases. In Mumbai I do not expect corrections in real estate prices in the short term. There is not going to be a reduction in the rate per square feet,” said Maneesh Srivastava, chief executive officer, Muthoot Housing Finance Co.

But not everyone’s convinced prices will hold firm for long.
The property market has slowed down significantly over the last 20 months or so and is not expected to reverse course anytime soon, whether or not the lending rates come down from here.
LIC Housing Finance, which introduced a home loan product, Freedom, last month, could be a case in point.

Under the scheme, the lender offers loans below Rs30 lakh at an attractive 9.85% (based on a floating rate system) compared with peers like State Bank of India which charge 10.25%. Despite offering one of the lowest rates in the industry, the company’s loan book has seen only a marginal growth.

“In April, the growth (for LIC Housing) was a little below Rs1,000 crore in fresh loan sanctions, and in May, it was around Rs1,100-1,200 crore,” said a source.

Anil Kothuri, head, retail finance, Edelweiss Group, however, blames both lenders and developers for turning buyers away. “A higher cost of the property implies a larger down payment — which means you need more savings and a higher loan amount,” he said. Real estate experts see market forces winning the tug-of-war with developers eventually.

“Home sales in the last quarter (January-March) in Mumbai-metropolitan region were only around 9,000 units compared with 21,000 units in June 2009. Developers will have to bring down prices as the customer cannot afford such levels. No market can handle such a price rise,” said Pankaj Kapoor, founder and CEO, Liases Foras, a Mumbai-based real estate research firm.

In the long term, greater supply and improved infrastructure are seen contributing to the fall in real estate prices, at least in Mumbai.

“The state government is very clear when it comes to approving redevelopment projects, this will surely add to the supply. Another big advantage is that with better infrastructure, consumers do not have a problem in travelling a little,” said Pranay Vakil, chairman of KnightFrank, a real estate consultancy firm.