Increasing interest rate resulted lull in property market
The impending rise in the interest rates on home loan following the RBI's decision
to raise the policy rates is likely to affect the real estate sector in the country which can be seen easily with the help of property classifieds. According to a report by HDFC Securities, "With interest rates moving up and property prices having appreciated, the transaction volume in housing sector could remain under pressure." It is expected that interest rates on home loan are likely to go up by half a percentage point from October.
Property prices had corrected in 2008-09 following the global slowdown due to the financial crisis in the developed economies like the US and Europe. But the fiscal and monetary measures taken by the government and RBI in India, the situation ameliorated and transactions in the housing sector picked up. However, the pick up in transaction led to spurt in prices and the volume fell down. "After an initial pick up in fresh transactions, the momentum of fresh transactions slowed down, largely due to higher property prices, indicating that such higher property prices are artificial in nature," the report says.
The rise in the property prices in the metros in the last one year have already affected the number of deals happening in the sector and people started using
free classifieds to get best deal. Now, as the RBI is tightening the monetary policy, the situation could worsen further. The report said, "The growth in housing volumes hasn't picked up the way economy has rebounded, which appears to be a paradoxical situation." Some of the large real estate companies have reported a moderation in fresh transactions during the April-June quarter of 2010. "We believe the reason for the sluggish volume growth is high property prices," the report pointed out.
As per RBI, the price increase is to the tune of 25-40% in large metros, back to the pre-crisis peaks. But, the rise in the prices is not because of the surge in the demand.The report said that despite offering home loan at attractive rates by banks, the home loan growth for the system remained sluggish at 10.8% year-onyear basis and 2.7% quarter-on-quarter basis. Going forward - it points out - fresh transactions in the housing segment could remain under pressure due to the high interest-rate environment and a spike in property prices. In normal circumstances, improvement in underlying economic drivers, rising consumer confidence and availability of cheap credit are the positives to boost the real estate sector.
In India, during the period of high economic growth between 2002-03 and 2007-08, the total housing loan disbursements by banks and housing finance companies grew strongly at an annual rate of 24%.However, this time around, the correlation does not seem to be playing out as fresh transactions have slowed down despite a pickup in economy and low interest rates on home loans, the report says. The growth in the disbursement of home loan is modest at 10.8%, which is worrisome.
After coming out of the slowdown in 2008-09, the housing sector did witness some improvement driven by correction in property prices, lower interest rates on loan, improving business confidence and rising consumer confidence. However, the sharp pick up in housing demand and improved economy resulted in a spurt in property prices, which has touched the pre-crisis levels in select markets like Mumbai and Delhi, the report says. With the exception of Noida and Greater Noida where the prices remained realistic, resulting in a spurt in the transaction volume.
On an average, the report said, property prices in the metros have increased by 25-40% which can be check at many
property sites online. "This seems to be a paradox to us that though the GDP growth has picked up well, some direct players like real estate sector seem to be barely able to maintain the pace of transactions," HDFC Securities says.The combined effect of rise in the property prices and in interest rates will affect the end users affordability, which is measured as the number of years' income required to buy a house. Affordability of end users increased and stabilized in the last few years - largely owing to the contribution by the strong growth in economy, rising income levels and improving confidence levels - at around seven years' income.
For a twenty-year loan of Rs 30 lakh, one percentage point increase in interest rates would result in an increase in equated monthly installment (EMI) of 7%.However, the impact on affordability will not be significant. It is likely to remain at less than five years' income. This is still lower than the 15-year average of seven years' income, the report says. However, any significant increase in interest rates beyond one percentage point will hurt affordability of the buyers.
Article Source: http://content.magicbricks.com
Increasing interest rate resulted lull in property market
By: Mamta
Chez Ami Examination: Is This Company A Scam? 6% Drives $160 Billion Dollars Of A Market Industry contracts are different from the General market transaction key eLearning Instruction Curve –Learn How To Earn Money As An Affiliate Marketer What Makes a Profitable Commercial Site Successful Sales: Zhang Xiangning Marketing Is The "nail On The Head" Dog Potty Training Scam Making Profits As A Lawyer Chicken Diy Guides Scam Hemorrhoids Saviour Scam Chicken Coop Guide Scam Scamdicappers in to Scramdicappers Making Money With Affiliate Marketing - Can It Be Done?