Monday, May 14, 2007

Housing market trends


In the near future at least rates are likely to remain stable, since inflation is expected to come under check as the Reserve Bank of India has been taking necessary steps to tame it.

Former SBI Chairman, AK Purwar is optimistic about interest rates and says they have almost peaked. "My perception, as far as interest rates in general are concerned, by and large they have peaked. Inflation numbers have started improving now, and are showing a downward trend. I am very positive and sure that housing loan interest rates have also peaked. As soon as RBI becomes comfortable with inflation numbers and feel that they are in the range which they are targeting, I am very positive that they would look at these rates little more positively."

Chairman of HDFC, Deepak Parekh too believes that interest rates will stabilise looking at a cool down in inflation.

"My view is that interest rates have stabilised and will remain at the present level for atleast the next six months till the new inflation numbers come up because there has been a slight weakening of the inflation numbers that have been recently released," he says.

On the other hand, bankers are also finding that the demand for retail loans has redued a bit owing to the interest rate rise in the past 2 years.

Purwar says, "The demand has to be correlated with interest rates. If you compare the interest rates in housing loan during last two years to what the position is today, there has been a very substantial interest rate hike as far as housing loans are concerned. The middle class which was getting into housing in a very major way, suddenly find that its liabilities in terms of EMIs have gone up substantially. With this naturally the demand will get impacted. But I think in times to come we will have to work out systems that the demand instead of going down goes up provided other things are right."

Parekh does not feel that that the loan demand has come down all that much, but he says that now property prices are seen coming down.

"The demand hasn’t dropped for actual users - for those people who are in the market to buy a house to live in. But the demand has certainly dropped for many investors around the country, who have realised that property prices have peaked and they are unlikely to go up further; so there is no point of putting surplus money into the real estate market."

He adds that, in quite a few places in India, property prices have started weakening and in some areas they have come down 10-20% in the last few months. "Most of the builders are complaining of slow sales and when the sale slows down the only option a developer has is to bring prices down. So I expect prices to come off in the next few months," he claims.

So how soon before one could see some cooling off in interest rates? Purwar says it would be sometime next year, provided inflation remains low.

"My feeling is, the RBI and government would definitely have a very close watch on how inflation rates move. If the inflation rates come within the manageable limits and the limit which they are attempting to achieve, I am sure that they would start signaling the market where they would like to see interest rates move. Maybe for another six-nine months, it should continue at this level. If inflation starts moving the other way there could be another small hike but after that the interest rate will see the other trend, maybe some time next year interest rates in my view should start moving the other way."

So, while prices in the real estate market may be cooling off a bit, the interest rate scenario over the year would determine the condition of the housing sector in India.

No comments: