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Property prices begin to dip, shows index
Published on 2 Jul. 2011 9:43 PM IST
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Aspired to buy a house but could not afford it? Finally, there is some good news for you. The latest Residex released by the National Housing Bank on Friday shows that property prices rose only in six of the 15 cities covered by the residential price index -- which is a situation similar to what was seen at the height of the global financial crisis. It was only Mumbai, Delhi, Ahmedabad, Chennai, Lucknow and Pune that bucked the falling trend. The steepest increase was seen in Pune, where the index rose just 5%. In contrast, Kochi (14.85%) and Bangalore (12.87%) saw the sharpest correction between October-December 2010 and January-March 2011.
So, what caused this? As demand came back with gradual economic recovery in India, realtors, some of whom were facing severe debt problems, started raising prices to cash in on the opportunity. Things went to the extent of prices in certain cities moving well past the pre-crisis levels. If one were to use Residex as the gauge, then there were only four cities -- Delhi, Hyderabad, Jaipur and Kochi -- where the index was lower than July-December 2008.
While prices were becoming unaffordable in many parts of the country, the Reserve Bank of India’s repeated rate hikes also made purchases more expensive. Though the index for the April-June quarter is still two months away, with rising interest rates the speculators are staying away, and that could have an impact on the how prices move. “The demand from people who are buying houses for themselves has not declined. But, yes, those who were looking to buy a second house or were viewing it as an investment opportunity are watching from the sidelines,” said IDBI Bank CMD RM Malla.
Anshuman Magazine, CMD of real estate consulting firm CB Richard Ellis, contended that in major markets, demand slowed down in April-June compared to the first quarter of 2011. “But there is still good demand from end users at the right rate,” he said. And, with the stock market sentiment also not favourable to real estate players, the expectation is that further correction is in store in the coming months as builders would try to offload their stock.
“Postponement of the purchase and borrowing decision will result in a correction in the market condition and prices will come down. Excess supply will partly be tackled and funds that are locked up in unsold properties will get released,” said National Housing Bank (NHB) CMD R V Verma. Lenders such as State Bank of India are already witnessing a decline in demand for home loans with the growth rate moderating.
Magazine said the demand for apartments would be impacted if interest rates rose further. “Then, there are other threats in prices, inflation and the overall economic situation, given what’s happening globally.”
So, should people buy or wait? Bankers and consultants said if the quality of the property, developer’s track record, location and the overall supply-demand dynamics are good, then you could think of buying. “Real estate is a long-term investment. So even if prices were to fall 2-3% in the next five-six months, they will rise again,” said Magazine.

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