Despite a slight drop in interest rates on home loans, real estate prices are still very high in big cities. Experts say it will stay that way for several months. That means most people still can't afford a home of their own.

All across India, middle class families are getting doors slammed in their face. Home loans have climbed by five per cent in the last four years while property prices have doubled in parts of cities like Delhi, Bombay and Bangalore.

Fall in sales

A survey conducted by ASSOCHAM or Association of Chambers and Industries show that sale of residential property in the last three months is 70 per cent lower than the same period a year ago.

Over the last four years, the resale market has dropped by 60 per cent in metros, so nobody is buying property as an investment any more. The survey also found that 33 per cent of those who've taken home loans have been forced to extend their loan period by five years because of rising interest rates.

Prices not to fall

But real estate experts argue that dropping interest rates is not the way to go because property prices are totally out of reach for the average Indian. Experts are of the opinion that prices will not be falling in the next few months in any major metro.

But if someone is expecting the property prices to fall to 2002 levels, that is quite unlikely. In certain pockets like NCR, Bombay, Bangalore the sheer demand itself will help property price to sustain or go for a minor correction. But for smaller cities we may see a major correction.

Banks like State Bank of India and Punjab National bank have dropped their interest rate by 0.5 per cent for the festival season, but they deny that this will continue beyond Diwali. And the problem is that middle class India still has nowhere to live.
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  • If 'Middle Class has no where to live', then what about the lower class...:(
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  • Its quite disheartening to see that someone representing today’s young generation still divides the society in to base less classes … Lower class, Middle class…

    Anyways for the sake of argument – you can suggest something for the so called lower class - like.. they can live in ‘jhuggis’…

    But the point is that though all the major developers across the country have special schemes for the MIG it is still unaffordable for the common people. Blame it on the steep interest rates or the so called ‘bubble’ in the real estate sector. To own a home still seems to be a distant dream for the working class people with limited disposable income.
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  • Light at the end of tunnel

    Its ridiculous that some one is trying to escalate over a simple remark, and introducing politics at the forum.

    Classification of income groups is an essential part of demographics and form basis in formulating economic policies.

    Any ways to add to the information huge public housing schemes like National Urban Renewal Mission and Indira Awaas Yojana are under progress at various stages at different parts of the country and due focus has been given on the EWS (Economically Weaker Section) category.

    People having incomes lower than Rs 25,000 a year will be alloted the flats at price band below 1-1.5 lakh, and similarly the flats will be given to the families in accordance with their economic state. The loan facility is also there in place.

    Besides public construction projects, builders and developers too are encouraged for building EWS flats and a host of incentives like rebates in land rates, finance, taxes etc is also being offered to them. And it is working in tier 2 and tier 3 cities!!!
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  • Housing the urban poor

    Housing for the urban poor - the mantra for a round of back patting for the politician, raised eyebrows for the bureaucrat, and eternal hope for the poor! How tenable is this laudable goal?

    Unfortunately, urban housing is trapped in the gridlock of outdated policy prescriptions and bureaucracy. Successive governments have taken up housing as a priority welfare activity, built a large number of houses, and allotted them to the urban poor. Most such units are heavily subsidized, with the remaining cost shared between a bank and the beneficiary.

    Many problems, however, plague the existing arrangement.
    With growing urbanization, demand has far outstripped supply. Further, since land is scarce in cities, its use needs to be optimized. Next, migration is a definitive trait of the urban poor and any urban housing policy needs to account for it. Finally, in the present arrangement, it is common place to find people selling away their allotted units, and moving back into squatter slums.
    A substantial portion of houses in government colonies are generally sold or leased out, thereby defeating the very purpose.

    Housing policies need to meet the broader economic objectives, and ensure regulated urban development. How do we help our fast-growing cities, already constrained by lack of basic civic infrastructure, to cope with the massive, unregulated influx from rural areas, without appearing unsympathetic? Ultimately, poverty elimination and other goals will be achieved only if the city is on a vibrant growth trajectory.

    Any urban housing policy should prioritize that category of urban poor who are essential foot soldiers in the urban growth engine. We need to build an adequate stock of housing and create a market in rented housing for the poor. A database of beneficiaries can be prepared and they can be allotted rent vouchers. These can be allotted for one year, and then renewed, thus keeping a check on fraudulent practices such as sales and subleases. As an incentive, the house can be finally transferred to the tenant after a period of responsible habitation, under certain conditions. This arrangement will legalize the reality of sales and rental transactions of the houses allotted to the urban poor.

    Residents of such colonies would not suffer from the problem of uncertainty in tenure, and will have access to all basic civic facilities. In any case, all government housing schemes now have a significant bank loan share, which the beneficiary has to repay in monthly installments. Rental vouchers would only substitute this with the rent.

    A public private partnerships should be encouraged to help us leverage private resources. Given the huge demand for lower income housing and the plethora of long-tenure financing options, these ventures also offer vast potential for real estate developers.
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  • Something is better than nothing

    The Centre is about to finalise a scheme aimed at making housing more affordable for the poor in urban areas, by providing them with home loans at subsidised interest rates.

    The scheme basically proposes to increase credit flow to the economically weaker sections (EWS) and lower income groups (LIG) who find it difficult to purchase a house due to problems in getting loans from banks and the high interest rates prevailing in the financial market.

    Under the scheme, which is being given finishing touches by the Ministry of Housing and Urban Poverty Alleviation, a five-year rebate on the interest payable on the housing loan amount will be given to borrowers from low-income households.

    According to a senior official, the loans will be made available at reduced interest rates by designated public sector banks and government-run lending agencies in all states. These, in turn, will be compensated by the ministry for the difference between market rates and the lower rates.

    Source: Indian Express, 06-Sep-2007
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  • Only the builders are making money

    No one has to gain from this so-called bubble except for the builders
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