Real estate prices – Up and Away

Real estate prices – Up and Away

Source: timesmoney..

With real estate prices having clocked a phenomenal rise over the past year and a half, the question on every property investor’s mind is — “Are these growth rates sustainable?”

For potential real estate investors, tracking property markets in Mumbai over the past year or two has been an unnerving experience. Prices seem to be getting steadily inflated and you hope in your heart that a correction is around the corner.

However, the longer you wait for a fall in rates, the more elusive it seems to get. To make matters worse, interest rates on property loans are climbing too. If you find yourself faced with the predicament of whether to buy now or wait for the bubble to burst, revisiting Mumbai’s property market fundamentals may offer you some advice.

Recent trends in real estate prices Over the past one year, the prices of property have risen by an average of anywhere between 40 to 60 per cent in the more popular areas of the city of Mumbai. In some cases, the rates have even doubled during this period.

Unrelenting demand

The demand for homes has remained strong as it is fuelled by factors such as easy availability of loans to fund property deals, a rise in disposable incomes of young people in the city, fiscal incentives attached to purchase of homes, etc. As Prashant Dixit, senior manager, corporate sales, 99acres.com explains, “Certain types of properties are always in demand. For instance, in the case of a 2BHK apartment in the range of Rs 40 lakh, there are always takers in excess of availability. The housing segment in general, barring a few pockets, is largely a sellers market.”

Commercial property too has been subject to growing demand. With the entry of Wal-mart and the launch of the Reliance chain of fresh food stores, “big is beautiful” in the retail space translates into greater demand for such property, which in turn means stiff prices. This pressure comes in addition to the already steady demand from the Information Technology, Business Processes Outsourcing, Biotech and other such sectors as they expand their presence in and around the city.

Rates could steady in future…

While the persistent demand will ensure that fall in prices is not likely, there have been some measures implemented to slow down the rise in prices. As Anju Puri, managing director, Trammel Crow Meghraj, explains, “Certain aspects of the property market will not change. Those who wish to purchase homes for their own consumption will continue to purchase them anyway, irrespective of whether interest rates are up or down and how property prices move. However, loan regulations pertaining to buyers of second homes have become more stringent.”

There are also economic factors which point to a slowing down of the growth in property rates. There is a fair amount of supply coming in due to changes in land laws and development of land banks held with developers. There has also been an increase of 1-1.5 percentage points in the rates charged on property loans; this could dissuade speculators. And lastly, such growth rates in prices cannot be sustained in the long run since a real estate market can only develop in the presence of fair rates and healthy volumes,” offers Kekoo Colah, executive director, Knight Frank (India) Pvt. Ltd.

Last, but not the least, development of infrastructure and work opportunities in satellite cities like Navi Mumbai and Thane could take the pressure off the island city of Mumbai.

…But no scope for a meltdown The rise in prices of real estate has been very area-dependent. Home buyers are not looking for merely low prices but also access to good infrastructure and lifestyle facilities and where commercial buyers are concerned, infrastructure and location are the priorities. Properties that fit the bill have commanded a premium and it is such areas that are witnessing the incredible rise in prices. As the country moves towards economic prosperity, the premium that its financial capital commands can only grow.

Don’t wait for the bubBle to burst

Although there is scope for debate on whether rates will continue to rise at this scorching pace or the rate of increase will ease a little, there seems to be a consensus on the fact that property prices are not coming down. So don’t wait for the bubbles to burst. It doesn’t look like a bubble at all ! -

Over the past one year, the prices of property have risen by an average of anywhere between 40 to 60 per cent, and in some cases even doubled, in the more popular areas of the city of Mumbai. - Although the rise in property prices has been coupled with an increase in the cost of property related loans, this has done nothing to dampen demand. - While the persistent demand will ensure that a fall in prices is not likely, there are factors that point to a slow down in the rise in prices.