Moneylife article
Housing prices are again reaching for the skies; demand is stagnating. How much should prices fall for the market to be reasonably valued? When can that come about? Moneylife reporters and analysts offer some answers.
If the current trend continues, it is likely that Mumbai will soon see stagnation in property sales; so will Bengaluru, Delhi-NCR and other metros. Teaser home-loan rates notwithstanding, buyers are showing no eagerness towards committing to their cherished new homes. If prices continue to spiral northwards, will buyers be eventually priced out of the market? Will we witness the bursting of yet another bubble or would that be just a temporary phenomenon?
Pankaj Kapoor believes that the government is actively fuelling a property price bubble in Mumbai. “The Mumbai Metropolitan Region Development Authority (MMRDA), in its own plans, says that increasing the valuation of the land sold is one of the key objectives. It is the government which is creating the bubble,” he asserts.
This is where the problem lies. Inflation is now touching almost 10%, prompting the government to gradually roll back the earlier monetary stimulus measures. Interest rates are expected to go up further. It is worth noting that every 0.5% increase in interest rate reduces home loan eligibility by approximately 7% (by making home loans costlier and also by reducing the eligibility of the lower-income segment).
In this scenario, what should home-seekers be doing? Many of you would be looking out for that cherished new home that you have wanted for so long. Does it make sense to take a plunge at these prices? Not if you are smart. Many buyers have postponed their home purchase decisions in view of the steep appreciation in property rates. Wait a bit for prices to cool down and then make a move for that dream house.
Saturday, 5 June 2010
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