Real estate market ready for correction

NEW DELHI/BANGALORE: Property prices are finally correcting after a year of upswing that crimped home sales across the country, a housing index showed on Friday.

Property rates dropped in the quarter ended March over the previous three months in eight of the 15 cities tracked by the National Housing Bank's residential housing price index, or Residex, with the fall being the steepest in India's silicon valley, Bangalore. Prices rose the most in Delhi, though at a modest 2.4%.

In metros where prices fell, Bangalore was followed by Hyderabad (4.6%) and Kolkata (0.8%). Other cities that saw a decline were Kochi (14.9%), Faridabad (6.4%), Jaipur (2.6%), Surat (3.8%) and Bhopal (3.6%). Prices in Mumbai, Pune, Lucknow, Ahmedabad, Patna and Chennai went up marginally.

"Some of the markets like Bangalore had seen a big increase in property prices over the last one year. Now the market seems to have responded to the slackness in demand and higher interest rates," said National Housing Bank chairman and managing director RV Verma.

Home loan rates have gone up from about 8% a year back to about 11.5% today. As a result, property prices, which have been on a boil across the country in the last one year, have begun to come down, forcing buyers to defer purchases in many markets, especially Bangalore, Mumbai and Delhi.

Naresh Dandapat, regional director (south) at property consultancy Knight Frank India, said there was a correction in the Bangalore market in the last 45 days. "It is headed for a further correction as developers are looking at tapping the latent demand in the market," he said.

Kolkata and Hyderabad have seen a general flight of capital because of political uncertainty. "In the January-March 2011 quarter particularly, there was not much of decision-making in Kolkata, both on the government and consumer side, because of the elections," Verma said. In both these cities, developers were keen to quickly exit projects by lowering prices.

The rise in interest rates in recent months was the main reason for prices falling in smaller cities like Jaipur, Surat, Kochi and Bhopal. "It impacts small buyers the most, who then defer their decisions to purchase homes," Verma said. The demand slump in these cities is not so much because of high property prices.

The surprising development was the price increase, though marginal, in Mumbai and Delhi, where demand had slumped in the last few quarters. "In these two cities big players have the capacity to hold on to prices," Verma pointed out.

In the last year, very few projects in Mumbai got approvals because of greater scrutiny by authorities, which has meant very little new supply. "As demand picks up, there will be short supply in Mumbai and prices will increase further," says Lalit Kumar Jain, president of Confederation of Real Estate Developers' Associations of India.

Source:- Economics Times