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Market to cool off in 2008?

Last updated: October 13 2008
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  • Market to cool off in 2008?

    MALAYSIA: India’s heated property market is likely to cool in 2008, ICICI Bank chief executive KV Kamath said on Tuesday in a forecast that could give pause to domestic and foreign investors, who have poured billions of dollars into the country’s real estate. Mr Kamath said he sees “some correction in the next 12 months or so”, and cited a slowdown in the number of homes sold this year — and more land becoming available for sale — which would ease demand. Mr Kamath said there would not be a drastic fall, however.

    “Correction could have been sharp in the past, but this time around correction will not be sharp. Maybe 20-25%,” he said. Kamath, 60, was in Malaysia to receive the Forbes Businessman of the Year award for resurrecting ICICI from near-bankruptcy and turning it into India’s largest private sector bank, as well as one of Asia’s top 10.

    ICICI’s assets have grown 40% annually in the past three years to $93 billion, propelled by a boom in Indian consumer credit where it has a dominant one-third market share, including in home loans.

    Source: The Economic Times
  • #2

    #2

    Re : Market to cool off in 2008?

    After so many "reports" about behaviour of ICICI's "collection agents", our experience says that people are preferring for "other" options.

    So, if ICICI is disbursing less number of "loans" the problem is "somewhere" else, definitely not in property market.

    Property prices, specially in Mumbai/Navi Mumbai/Thane (primary property hub) are going up and up. There's no symptom of going down. We've seen that though the rate of purchase has gone down (not because of ICICI's "whatever", because of high interest rates), builders/promoters are not reducing their rates.

    So, the basic point is, demand is more than supply, so the rates will go up, in 2008, 2009 and 2010, definitely.

    Rate of "Roti, Kapda aur Maukan" will never go down. So, pppplease don't wait (or get mislead), buy NOW!

    Comment

    • #3

      #3

      Re : Market to cool off in 2008?

      I'm afraid Mr. Kamath may be right. Here in Kerala, the property prices have risen to fundamentally unsustainable levels. Stretches of empty land where no constructions have been undertaken have been blocked by speculators. Agricultural land prices (far moved from urban areas) are ridiculoulsy high, higher than corresponding land prices in UK!! This cannot be sustained and has to correct.

      As an experienced investor in Kerala property market, what worries me is that in rural areas every other person has now become a property broker. I see this popular frenzy as a warning bell that heralds a crash.

      But this is not to say that the general direction of real estate is bullish in the long term -- say, with another 10 years timeframe. I think it would be wise to wait for another six months before investing in real estate in India, and particularly in Kerala.

      Comment

      • #4

        #4

        Re : Market to cool off in 2008?

        Cheers Medit.
        There are many contradictig articles, some of the most recent ones proclaiming a high interest in Gujarat now. I must admit, personally, I too feel a slight correction in the market will come more rather than not but I don't think it will be tremendous or a shocking one (Like Mr. Kamath says, they expect a change of 20%-25%). But where some markets may go down, others may still go up. There's still enough potential but perhaps over-zealousness should be avoided.

        Comment

        • #5

          #5

          Re : Market to cool off in 2008?

          I do not think that property prices will come down, however they may not go up and may stay whereever they are for a longer period, but property prices going down seems to be unlikely.

          I say this because cost of building material is constantly going up and therefore supply of too much houses with too little demand for buying the houses, is not the only factor that drives the prices downward.

          and also just one bank's topgun's statement is not considered as a general trend to figure out which way the prices are going to go!!!

          with billions of dollars being pumped into real estate sector, not just by indian builders but also by FII, its likely to stay strong and no investor would ever let the prices fall and you will continue to see that builders and banks will comeup with a substantial loans (with long terms), yet cheaper EMI to tempt first time buyers to enter the market, that will continue to generate the demand and keep the prices stable, rather than falling.

          Comment

          • #6

            #6

            Re : Market to cool off in 2008?

            That is right. Some of the things I have learned...

            Just do your own math and see what will really cause the prices to come down?

            Property prices depend on -

            Demand - Ever increasing especially in Tier I and II, there are people buying their first home and then investors buying multiple properties. Not everyone may think like this but other people from all over the world will continue to drive the property prices up whether one likes it or not.

            Supply - Prime cities, where space is a problem, supply in hot pockets will shrink and shoot the prices up. This will make the prices in the subarban areas to go up in proportion and so on. The wise investors will look for opportunites where there is maximum return and subarban or developing cities are good choices.

            Psychology - Look at all of us, why are we spending so much time on discussing the real estate news and events? Why there are more websites, advertisements, blogs, etc? Everyone is attracted to the real estate market nowadays. How will it bring the prices down? Our psychology depends a lot on our vigilance towards our friends, relatives or other people that we know. Ex. Let's say, there is a 2 bhk flat on sale in the market for 1 crore and actual price was 50 lacs before the boom. Buyers or Investors, who keep a constant eye on the prices will buy it right away if the prices drop to say 80 lacs because it seems like a good deal. Imagine, how many such buyers are out there. The seller realizes the demand and the as a result ptice will continue to rise.

            Material Costs - No brainer.

            Higher Standard of living - Always true. When the new houses come with all the ameneties, people would want to move into newer homes.

            Mortgage Loans - first time buyers, property appreciation > interest rate or rental income = EMI for investors.

            Safer than stocks, Population, Inflation, Economy and more jobs, higher pays, family with two income.....

            So many reasons to drive the prices up.....

            Can anyone think of a good reason why the Government or Market will do a correction? I have been looking for one...

            Comment

            • #7

              #7

              Re : Market to cool off in 2008?

              Real Estate prices to fall in the short term

              I have been living in Chennai for the last 3 decades and the prices I hear today are mind boggling. Places like Alwarpet and R.A.Puram quoting more than Rs.10,000/- per sqft.( Residential). Rental have not gone up in the same proportion to justify investment. Salary levels have not gone up to induce purchase at these levels. Peripherals of Chennai have seen stagnation and prices have fallen in the last 6 months. Transactions have come down considerably. These are clear signs for correction in price which should happen in the next 6 months.

              Originally posted by Sid View Post
              That is right. Some of the things I have learned...

              Just do your own math and see what will really cause the prices to come down?

              Property prices depend on -

              Demand - Ever increasing especially in Tier I and II, there are people buying their first home and then investors buying multiple properties. Not everyone may think like this but other people from all over the world will continue to drive the property prices up whether one likes it or not.

              Supply - Prime cities, where space is a problem, supply in hot pockets will shrink and shoot the prices up. This will make the prices in the subarban areas to go up in proportion and so on. The wise investors will look for opportunites where there is maximum return and subarban or developing cities are good choices.

              Psychology - Look at all of us, why are we spending so much time on discussing the real estate news and events? Why there are more websites, advertisements, blogs, etc? Everyone is attracted to the real estate market nowadays. How will it bring the prices down? Our psychology depends a lot on our vigilance towards our friends, relatives or other people that we know. Ex. Let's say, there is a 2 bhk flat on sale in the market for 1 crore and actual price was 50 lacs before the boom. Buyers or Investors, who keep a constant eye on the prices will buy it right away if the prices drop to say 80 lacs because it seems like a good deal. Imagine, how many such buyers are out there. The seller realizes the demand and the as a result ptice will continue to rise.

              Material Costs - No brainer.

              Higher Standard of living - Always true. When the new houses come with all the ameneties, people would want to move into newer homes.

              Mortgage Loans - first time buyers, property appreciation > interest rate or rental income = EMI for investors.

              Safer than stocks, Population, Inflation, Economy and more jobs, higher pays, family with two income.....

              So many reasons to drive the prices up.....

              Can anyone think of a good reason why the Government or Market will do a correction? I have been looking for one...

              Comment

              • #8

                #8

                Re : Market to cool off in 2008?

                Dear Moorthy,

                I agree with your observations but that sounds to be more like wishful thinking. Going deeper into the situation, have you been able to notice that lot of builders who are afraid of demand slowing down are holding up their flats and not selling them to maintain the demand-supply ratio.

                Obviously, they have their bills to pay and can't live with the empty flats for long. So they rent it out and earn good rental income while steadily selling the flats to people who in their view are not "bargain hunters".

                The salaries are in IT and other companies are good enough to rent the flat if they can't buy it.

                Anayways, it is interesting to wait and watch the market...

                Comment

                • #9

                  #9

                  Re : Market to cool off in 2008?

                  Correction in Real Estate prices in Chennai

                  You have done a very detailed study. But then if you compare Chennai with Bangalore, Real estate prices in Bangalore have come down and indications are that it will further come down. IT Hub is Bangalore. It is coming down primarily because buyers do not see buying property as a good investment. Interest rates have gone up considerably and today if you borrow 50 lacs, you will have to pay around 55,000 per month towards instalment. Even if you have the luxury of both husband and wife working, still a repayment of Rs.55,000 per month for the next 18 to 20 years is a big commitment. The assumption is that the balance you invest from your side. ie. upto 20 to 25 lacs. This will be life their time earning.

                  People in Bangalore have realised this and have stayed away from investing. Lets not forget that most of the deals are inflated by the middlemen. Unfortunately in india we do not have a organised set up for real estate.

                  I am convinced that at current levels there is no way property prices can go up further. Therefore every reason to believe that the excess supply and availability of land should help in prices coming down.
                  Originally posted by moorthy64 View Post
                  I have been living in Chennai for the last 3 decades and the prices I hear today are mind boggling. Places like Alwarpet and R.A.Puram quoting more than Rs.10,000/- per sqft.( Residential). Rental have not gone up in the same proportion to justify investment. Salary levels have not gone up to induce purchase at these levels. Peripherals of Chennai have seen stagnation and prices have fallen in the last 6 months. Transactions have come down considerably. These are clear signs for correction in price which should happen in the next 6 months.

                  Comment

                  • #10

                    #10

                    Re : Market to cool off in 2008?

                    Actually depend on location... some countries esp like Singapore and Malaysia are still going strong

                    Comment

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