Article in todays Economic Times after yday's RBI hike.
Lets hope it comes true !!

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Property prices are expected to correct around 20% as realty developers may not be able to hold on to the current prices following the Reserve Bank of India's liquidity tightening move to increase repo and reverse repo rates by 50 basis points (bps) each. On Tuesday,RBI raised its benchmark short-term lending rates by 50 bps each. This was the 11th successive hike by the central bank since October 2009, pushing the rate cumulatively by 325 bps.

"Banks will put pressure on developers for improving their business liquidity. It's a question of who blinks first, and for now, it looks like developers will. This will result in properties becoming cheaper by up to 20%, which is good news for the buyer," said Pranay Vakil, chairman of property consultancy firm Knight Frank India. According to experts, the current rate hike may achieve what the earlier 10 rate hikes could not. Most realty developers may be now forced to cut property prices and move the inventory out to infuse liquidity into their business, said market experts.

"It will lead to softening of property prices, as this 11th successive hike in rates will push equated monthly installments, or EMIs, up by 20% at aggregate level and to take care of this 20% hike, the borrower will have to increase his pre-tax income by almost 30%," Vakil said.

The move has come in as a shock and will hit both developers and home buyers given the higher cost of funding, said most realty developers. According to leading realtor Niranjan Hiranandani, who is also vice-president, Indian Merchants' Chamber and managing director of Hiranandani Constructions, RBI has done "beyond what's necessary."

The industry is facing a crunch and the fund gap over the next five years alone would be as high as $70 billion. The RBI announcement, therefore, could be detrimental to the growth of the industry and economy," said Lalit Kumar Jain, national president of Confederation ofReal Estate Developers' Associations of India. This will particularly impact developers who have so far resisted any price cut.

"Volumes would certainly take a hit, particularly in the budget segment where buyers are more sensitive to increase in EMIs on their home loans. Ultimately, though, property prices should trend downwards as the ability of the developers to hold on to inventory would be increasingly under strain, given the rising cost of funds," said Anjan Ghosh, senior group vice-president, head of corporate sector ratings ICRA.
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  • Decrease in real estate prices

    :oDecrease in real estate prices to the tune of 20 percent seems to be a distant dream.Atleast it is not going to happen in 2011:D
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  • Originally Posted by Krazy Yuppie
    :oDecrease in real estate prices to the tune of 20 percent seems to be a distant dream.Atleast it is not going to happen in 2011:D

    Even decrease of 10% will see lots of buyers...anyway Im sure this will be soon followed by a planted article by some Builder saying that prices will increase by 30-40% !!!
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  • Originally Posted by sh-saxena
    Even decrease of 10% will see lots of buyers...anyway Im sure this will be soon followed by a planted article by some Builder saying that prices will increase by 30-40% !!!


    hi
    Greetings

    Time to be careful of high debt companies struggling to deliver.
    Specially small timers who dont have transparent business models
    This is another blow to the real estate companies since banks/stock markets/private equity/FDI/small investors have given them a thumbs down

    Good opportunity for sleek, managed organisations able to provide value for money and excellent track record of project execution and delivery. Delayed projects will not help many builders if they understand the situation.

    Cheers
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  • My POV...Don't anticipate a downward price trend. The builders (esp. low-mid segment builders) themselves pay for the patch of land after exercising loans from the banks or through equities. I believe this interest rate hike would just check the increasing prices more than anything else.
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  • Originally Posted by nishant2hit
    My POV...Don't anticipate a downward price trend. The builders (esp. low-mid segment builders) themselves pay for the patch of land after exercising loans from the banks or through equities. I believe this interest rate hike would just check the increasing prices more than anything else.


    Builders are higly leveraged entity, that is they borrow a lot and now a days if you donot pay on time and default, you will never get any funding from any banks.So the priority if builder is to pay first and for this they need cash at any cost.So it is for sure that the prices will go down by 15-20%. just wait and see.
    another reason is no fresh project in noida/greater noida so they are not going to get new money only existing inventory will get them fresh money. And if they do not bring the price down who will buy flat at this stage of unceratianlty.prices will correct, only the %age is a question.
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  • Can naybody tell me how much correction we say in 2009

    Did builders launch at 20% less than market rate.

    Clealry currnet situation is not as bad as 2008-2009

    Just expect stagnation may be 5-10% fall max that too only in resale deals where big property guys will have the benefit of retail investors hardly gets distressed deals
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  • Impact of interest rates on Real Estate Prices

    Originally Posted by clearhai
    Builders are higly leveraged entity, that is they borrow a lot and now a days if you donot pay on time and default, you will never get any funding from any banks.So the priority if builder is to pay first and for this they need cash at any cost.So it is for sure that the prices will go down by 15-20%. just wait and see.
    another reason is no fresh project in noida/greater noida so they are not going to get new money only existing inventory will get them fresh money. And if they do not bring the price down who will buy flat at this stage of unceratianlty.prices will correct, only the %age is a question.

    Hi
    Greetings
    Spot on!!
    Most susceptible to maket changes in interest rates would be areas which are reved up and yet to be developed. Areas without external infra, roads sewerage, electricity, water and delayed projects like to be impacted the most.
    Only agile builders capable of delivering will be sought after. Those with infamous negative trust equity would suffer.

    Cheers
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  • The money required by the builder to be paid in installments to the authority is generally fetched by mid structure completion stage itself(given the prevelant payment plan). What the builders need to pay upfront to authority/contractors is borne by the banks/equity funds. For the projects that are already in execution (and also given that no new projects are expected), that stage has almost already reached. Since the supply has stagnated, i would foresee a check and not a depreciation.
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  • Supply status on dwarka expressway for new residential

    Originally Posted by nishant2hit
    The money required by the builder to be paid in installments to the authority is generally fetched by mid structure completion stage itself(given the prevelant payment plan). What the builders need to pay upfront to authority/contractors is borne by the banks/equity funds. For the projects that are already in execution (and also given that no new projects are expected), that stage has almost already reached. Since the supply has stagnated, i dont see prices depreciating.


    Hi
    Greetings

    Yes cannot ignore supply.. on the contrary supply is going to be humoungous in ggn. I have some figures for dway pls check the massive supply and about 5 times still to be launched by builders waiting for the fate of dway to be known.

    https://www.indianrealestateforum.com/forum/city-forums/ncr-real-estate/gurgaon-real-estate/15321-the-fernhill-ansal-api-sector-91-gurgaon/page5?t=17546&page=5

    Cheers
    CommentQuote
  • Originally Posted by amit001
    Can naybody tell me how much correction we say in 2009

    Did builders launch at 20% less than market rate.

    Clealry currnet situation is not as bad as 2008-2009

    Just expect stagnation may be 5-10% fall max that too only in resale deals where big property guys will have the benefit of retail investors hardly gets distressed deals


    This is exactly what everyone says before a bubble burst. In the pass 2000 years, no commodity has seen it's value just going up.
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