Properties in Mumbai, Delhi are overpriced
Growth in property prices in leading Indian cities is likely to slow down with merely less than 8 percent growth in the next year, revealed a survey conducted by Reuters. The reason for the slowdown in price rise is expected to be a cooling economy and increasing interest rates which would not favor homebuyers.
The survey on residential property prices in India was conducted by 11 property market analysts over the last three weeks. Based on the findings of the survey, it is estimated that, the price hike would be around 7.8 percent in the next year, which is way too lower than the current inflation rate of around 10 percent.
Similar scenario in major nations too
Not only in India, but other major nations including the United States, Canada, China, Britain and Brazil, are also expected to see a slow growth in property price rises, but not fall in prices, according to the findings of Reuters polls.
Income not favorable
With the economy’s growth swiftly decreasing to about half the 10 percent rate, at which it was moving prior to 2008, sales of residential units have dropped, which has led to increased unsold inventory. The main concern for decline in sales is high property prices. There is not much growth in the income levels of a majority of population while the price hike is way too higher to meet.
Factors contributing to high prices
The factors such as uncertain economic conditions, rising inflation, high interest rates, speculative growth, etc. have led to high property prices in India. Even though the prices have softened slightly due to recent slowdown, still many homebuyers with low income levels fail to afford properties. Even low cost homes seem to be unaffordable to homebuyers.
Price-hike in the upcoming year
Chennai is likely to witness the highest price rise in terms of residential real estate, which would be followed by Delhi and Bangalore. Properties in Mumbai which already contain high price tags are expected to remain almost constant.
The analysts who conducted the survey had to rate the cities on a 10-point scale rating basis, in which 1 are extremely undervalued while 10 is highly overvalued. India’s finance capital and national capital were given an overall rating of 9, which is a much higher rating across the world. Cities in UK with skyrocketing prices were rated 6, while those in Canada were rated 6.3.
Rising interest rates
The Reserve Bank of India had increased repo rate twice in September and November of the ongoing year which had added to the slowdown of the realty market. The banks were left with no other way than to pass on the increased rates to borrowers through higher interest rates.
At present, a home loan of about Rs 30 lakh from the country’s largest home finance company, HDFC, demands 10.5 percent annual interest, which is up by 35 basis points since the beginning of the year. If the loan amount is higher, the costs increase further.
Rising inventory levels add more pressure
As the unsold inventory is piling up, the pressure on developers is also increasing. In the prevailing conditions, it would take nine quarters for developers in Mumbai to clear the existing inventory, revealed a research by property consultant Knight Frank. Currently, developers are aimed at clearing the stock instead of new launches owing to which, new launches have recorded about 40 percent fall.
