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Why property prices are high when demand has fallen


Why property prices are high when demand has fallen

Last updated: April 17 2008
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  • Why property prices are high when demand has fallen

    Banks are slashing interest rates for first-time home buyers. Reports suggest real estate prices have fallen by 10-20 % in many places. People are getting out of their rented apartments, scouring for housing deals in the festival season, which is when the real estate market takes a two-week nap.

    However, the early birds are not finding any prize worms. Instead, they seem to run up against the familiar high rates, and belligerent attitudes. "I went back to the areas where I hunted for a house a year ago, and the builder is still quoting the same price. He was quite dismissive when I asked about a rate cut," says software professional Neha Swarup.

    What's going on in the real estate market? Is the drop in demand just a myth? If not, why hasn't it brought prices down? "Of course, there's huge drop in the demand for property, and some deals have been struck at lower rates. But an overall drop in rates is yet to happen," says a real estate expert.

    He points out that, traditionally, no deals take place during the Navratri season. "We are keeping a close watch on the situation. We believe that if there is no dramatic rise in demand by Diwali, real estate prices will come down." So perhaps if Neha were to wait it out some more, she may have some happy news. As for her anxiety about missing the bus to low interest rates, she can breathe e a s y. B a n k i n g officials say interest rates are unlikely to go up further. They believe the Reserve Bank of India is unlikely to keep up its monetary tightening measures.

    While the news of lower rates gave Neha hope, it has left Ajit Ram puzzled. He was at a loss to understand why banks would offer lower interest on home loans to new customers, while existing customers would continue to pay higher rates. “In a floating rate loan, the interest rate should go up as well as down, along with other interest rates in the economy. When the rates were coming down a few years ago, there were hardly any downward revisions.

    In the past year, my bank raised rates at least three times." Customers like Ajit feel banks have fooled them with floating rate loans. "It is oneway street. It is loaded against the customer.

    Banks win when rates go up, and they still win when rates are coming down," says Nisha Krishna, who took a housing loan six years ago. "They change the rate as and when it suits them." Harsh Roongta, CEO, Apnaloan, uses an analogy to explain why banks treat existing customers differently. He says with a laugh, "An existing customer is taken for granted, like a spouse, whereas a new customers may be treated like a girlfriend, who can enjoy a few extra privileges."

    Source: Economic Times
    19th Oct'07
  • #2


    Re : Why property prices are high when demand has fallen

    Every person wants to get the prices of our property when they have purchased the past rate which prefrences to show as to earn money in that matter.


    Have any questions or thoughts about this?