A recent hike in interest rates and inflation has a far reaching impact on real estate stocks, which are trading at 20%-40% below their 1 December 2006 levels. “Market capitalization weighted index”, SENSEX ran up near 1.77% - from 13844.78 on 1 December to 14,090.98 on 13 February 2007.

Market participants are the situation to be a double whammy of high property rates and increasing interest rates and inflation figures. High prices and interest rates are believed to be the factors contributing to the fact that real estate prices have become stable, says Hitesh Kuvelkar, associate director with First Global, who recently conducted a five city (Delhi, Bangalore, Chennai, Pune, and Mumbai) survey on property prices.

Nowadays, a few people are showing inclination towards making prospective investments in real estate, says Kuvelkar further. Supporting his statement, Rajen Shah, Chief investment officer of Angel Broking too finds real estate prices to have gone through rooftop substantially on land bank stories with unrealistic valuations. The real estate had witnessed a nice hike in the past two years. However, such a correction is needed and good for the market. The fall in real estate stocks may affect plans of the property developers who are planning to raise initial public offering (IPOs).

The inflation does not seem to take a downturn in near future, and the Reserve Bank of India (RBI), while trying to keep it under control, will tighten liquidity further thereby bringing an increase in interest rates. The trend is likely to remain so for sometime as the inflation is an election issue. Likewise, the real estate prices are expected to remain stagnant.

Not everyone is of the same view regarding the increase in prices of residential property. The economy of the country is growing at the rate of 8-9% and salaries have gone up higher seven to eight times as compared to what has been pad the four years back, while there has been no change in the housing loan rates. They are still moving at the snail’s pace.
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