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Housing prices may go up by 5-10% with rising interest rates

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Housing prices may go up by 5-10% with rising interest rates

Last updated: June 17 2011
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  • #1
    #1

    Housing prices may go up by 5-10% with rising interest rates

    NEW DELHI: Housing prices may rise by 5-10 per cent in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India's decision to raise key policy rates by 25 basis points.

    "Property prices are bound to go up in next 3-6 months by 5-10 per cent across the country," Confederation of Real Estate Developers' Associations of India (CREDAI) Chairman Pradeep Jain told PTI.

    Jain, who is also the Chairman of Parsvnath Developers, said the hike in repo and reverse repo rates would result in an increase in interest rates for builders and the same would be passed on to home buyers.

    He, however, said demand would not be hit despite the expected rise in interest rates on home loans. "People will continue to buy knowing that housing prices would go up further," he said.


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  • #2
    #2

    Re : Housing prices may go up by 5-10% with rising interest rates

    When rates rise, prices fall.

    D'uh!
    Venky (Please read watch a or before posting)
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    • #3
      #3

      Re : Housing prices may go up by 5-10% with rising interest rates

      While all input costs for RE are sure to go up due to high inflation, it is not rocket science that the RE prices would go up in pockets where it still sounds reasonable. Only debate would be 1) whether the RE price increase could beat the actual inflation and 2) If property prices could drop as measured in a foreign currency or gm of gold.
      Personally, I am still looking for a plot/flat which has come down by 30% in NE/Noida sectors as proclaimed by experts (also some on this forum) due to farmers agitation.

      Originally posted by Rohan_23 View Post
      NEW DELHI: Housing prices may rise by 5-10 per cent in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India's decision to raise key policy rates by 25 basis points.

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      • #4
        #4

        Re : Housing prices may go up by 5-10% with rising interest rates

        Venky,

        I am also a firm believer that when interest rates rise, prises fall or vice a versa. But that is only the case in newly declared projects where there are lots of un booked flats and builder is in rush to sell off everything to cope with rising rates. For projects that are already sold out will have a positive effect as there would not be any pressure on the builder and the prises rise at a smooth rate.

        Noida Extension has a totally different scenario. It’s not developed as compared to Noida itself and hence is vulnerable to anything. Be it farmer’s agitation or rising interest rates.
        People don’t invest there under this market condition and prises fall accordingly which is as mentioned by Vicky(30% in NE).

        I don’t think the prises will/have actually fallen down by that much but even if it does its only gonna happen to flats over 1 crore.
        All budget flats ranging 30 to 50 lacs, wouldn’t have any affect. As a matter of fact prices will increase as mentioned above. And if it is in Noida (not NE), it’s just an icing on the cake.

        Anyways, no matter any investment it be. It will always increase in the long run.

        So just sit tight on your investment.

        Cheers
        Rohan
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        • #5
          #5

          Re : Housing prices may go up by 5-10% with rising interest rates

          Originally posted by vicky6 View Post
          While all input costs for RE are sure to go up due to high inflation, it is not rocket science that the RE prices would go up in pockets where it still sounds reasonable. Only debate would be 1) whether the RE price increase could beat the actual inflation and 2) If property prices could drop as measured in a foreign currency or gm of gold.
          Personally, I am still looking for a plot/flat which has come down by 30% in NE/Noida sectors as proclaimed by experts (also some on this forum) due to farmers agitation.
          Bhaisaab, main bhi hoon aapke saath. I will be delighted to buy Stellar Jeevan (NE) or NRI Residency, Kings Park, Stellar Sigma (all in GN) at 30% discount from the current actual sale price (not the MRP)
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          • #6
            #6

            Re : Housing prices may go up by 5-10% with rising interest rates

            Clarification on Vicky6's statement as understood by me

            well, I think you all have misunderstood Vicky's statement regarding 30% fall in prices in NE(If I have not misunderstood it:-) )

            Vicky6 didnt claim that price has fallen 30% in NE area due to farmer agitation. Instead, what I guess is that Vicky6 sarcasticlly referred to prediction of some experts on IREF that prices will go down by 30% in NE region.

            Vicky6 mentioned that he is yet to find a property whose price has fallen 30% in NE area. What he might have suggested that there is no fall in property price in NE area as predicted by experts.
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            • #7
              #7

              Re : Housing prices may go up by 5-10% with rising interest rates

              Thank you for clarification.

              I believe we indeed correctly understood what Vicky wrote. We also want to join him to get the benefit of 30% CRASH.
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              • #8
                #8

                Re : Housing prices may go up by 5-10% with rising interest rates

                Originally posted by Rohan_23 View Post
                Venky,

                I am also a firm believer that when interest rates rise, prises fall or vice a versa. But that is only the case in newly declared projects where there are lots of un booked flats and builder is in rush to sell off everything to cope with rising rates. For projects that are already sold out will have a positive effect as there would not be any pressure on the builder and the prises rise at a smooth rate.

                Noida Extension has a totally different scenario. It’s not developed as compared to Noida itself and hence is vulnerable to anything. Be it farmer’s agitation or rising interest rates.
                People don’t invest there under this market condition and prises fall accordingly which is as mentioned by Vicky(30% in NE).

                I don’t think the prises will/have actually fallen down by that much but even if it does its only gonna happen to flats over 1 crore.
                All budget flats ranging 30 to 50 lacs, wouldn’t have any affect. As a matter of fact prices will increase as mentioned above. And if it is in Noida (not NE), it’s just an icing on the cake.

                Anyways, no matter any investment it be. It will always increase in the long run.

                So just sit tight on your investment.

                Cheers
                Rohan
                Actually there are 2 aspects to rate increase.

                One is for end user. With higher rates he finds it difficult to buy and defers/postpones/buys smaller. Hence resale velocity and quantum is affected and so prices fall. This happens with RTM and previously owned flats.

                Other is cost of production for a builder. High rates increase the cost of production of the flat significantly, since money is a major cost. If cost of money rises, flat prices rise. The article link clearly indicates this as the reason for price rise. This phenomenon however works in the long term. In the short term, if cost of money/carry increases, builder first tries to clear inventory by giving a discount. So initially prices fall.

                Rise in price due to higher cost of money gets passed on only in a scarcity situation - which currently is not existing in NCR and Bombay or anywhere in India. This did exist in Bombay of 70s and early 80s - when g-haronda picture was made. Those days we had inflation, RBI rates (they had reverse nomenclature those days, Repo was called reverse Repo and vice versa) were raised, and prices went up like crazy. Nobody could buy.

                Fortunately, we are living in better situation today and housing is in excess of buying capacity all over India.

                So, current rise in rates will affect prices only if the high rates persist for more than one year i.e. if there is persistent prolonged inflation and RBI is forced to keep rates high. We have seen this situation throughout 80s and 90s, when high rates forced high RE prices and huge RE price inflation.

                If RBI cuts rates within 1 year, then the rate hikes will not increase prices.

                If rates remain high at 7.5 plus or more (it can rise much more!!!) for 2 or more years, as inventory is cleared, cost of the flats will then rise a lot, as happened in 80s and 90s. This would mean a hard landing for India - high inflation, recession, jobs degrowth, salary degrowth - basically a stagflation. In that situation, RE prices will rise for multiple reasons - high cost of money, high cost of labour, high cost of iron and high cost of land with good road approach. People will not have jobs, flats will be in short supply - since nobody will build any more flats in a recession - life will be difficult. Those who have own flat will be the winner.

                I hope India doesnt head down this path - I am optimistic, although this Congress govt in every action has harked back to the regressive policies of the 80s and so a return of the 80s is definitely possible.

                Your RE booking will give you good returns in that extreme scenario.

                But in normal scenario, it means nobody will be looking to buy a flat and your booking will find no takers. Builders will also be giving discounts to clear inventory and so prices will fall. Probably by 20-30% (the extent of the upmove seen recently)

                It is a part of normal RE cycle. Dont worry, in a year or so, things will be back to normal.
                Last edited June 17 2011, 03:40 PM.
                Venky (Please read watch a or before posting)
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