Still unreal estate
The Financial Express, Feb 09, 2009, Page 6
Developers must cut prices
Housing finance companies may have reduced the interest rate on home loans, but borrowers are still in wait-and-watch mode, anticipating a necessary correction in real estate prices. The latest data from RBI credit policy shows that the off-take of credit for housing has slowed to 8.8% until December last year from 14.6% during the same period in 2007. To boost the home loan market, public sector banks are aggressively reducing their floating rates. State Bank of India, the country’s largest commercial bank, lowered its rate to 8% for new customers over the coming year—the second time it has reduced mortgage rates in as many months. Private sector banks are charging around 10% for fresh loans. Though the rate cuts are targeted more at new buyers, the economic slowdown coupled with high real estate prices in Tier-I and Tier-II cities (where the demand for housing is most), are dissuading potential homebuyers.
Interest rate cuts alone will not help boost real estate sales across the country and reciprocatory steps need to be taken by real estate developers. Though some developers have reduced prices by 10 to 15%, it is just not sufficient and most of the cuts were actually in the premium segment where the demand has plateaued. With the impact from the ongoing financial crunch mounting across all sectors, developers may have to sell the unsold stock at a much cheaper price to stay in business. Property prices, in the last two years, have gone up by as much as 70% in metros and developers’ profit margins went up almost three- to four-fold. But with the stock market at an all-time low and real estate speculation almost drying up, it is now end-users who are the potential buyers of property. A lot of developers are rushing to clean up their highly leveraged balance sheets and are under mounting pressure to meet their interest payment deadlines. In such a situation, a further cut in unsold property prices can boost sales, generate much needed working capital for the developers, which they can invest in low-cost housing as the long-term housing demand remains buoyant. The Planning Commission estimates that there is a shortage of 24.7 million houses, out of which 99% is in the EWS and LIG segment. The government has announced a series of sops for developers venturing into construction of affordable housing and investing in this category through a public-private partnership can be a win-win situation for all in the long-run.
The Financial Express, Feb 09, 2009, Page 6
Developers must cut prices
Housing finance companies may have reduced the interest rate on home loans, but borrowers are still in wait-and-watch mode, anticipating a necessary correction in real estate prices. The latest data from RBI credit policy shows that the off-take of credit for housing has slowed to 8.8% until December last year from 14.6% during the same period in 2007. To boost the home loan market, public sector banks are aggressively reducing their floating rates. State Bank of India, the country’s largest commercial bank, lowered its rate to 8% for new customers over the coming year—the second time it has reduced mortgage rates in as many months. Private sector banks are charging around 10% for fresh loans. Though the rate cuts are targeted more at new buyers, the economic slowdown coupled with high real estate prices in Tier-I and Tier-II cities (where the demand for housing is most), are dissuading potential homebuyers.
Interest rate cuts alone will not help boost real estate sales across the country and reciprocatory steps need to be taken by real estate developers. Though some developers have reduced prices by 10 to 15%, it is just not sufficient and most of the cuts were actually in the premium segment where the demand has plateaued. With the impact from the ongoing financial crunch mounting across all sectors, developers may have to sell the unsold stock at a much cheaper price to stay in business. Property prices, in the last two years, have gone up by as much as 70% in metros and developers’ profit margins went up almost three- to four-fold. But with the stock market at an all-time low and real estate speculation almost drying up, it is now end-users who are the potential buyers of property. A lot of developers are rushing to clean up their highly leveraged balance sheets and are under mounting pressure to meet their interest payment deadlines. In such a situation, a further cut in unsold property prices can boost sales, generate much needed working capital for the developers, which they can invest in low-cost housing as the long-term housing demand remains buoyant. The Planning Commission estimates that there is a shortage of 24.7 million houses, out of which 99% is in the EWS and LIG segment. The government has announced a series of sops for developers venturing into construction of affordable housing and investing in this category through a public-private partnership can be a win-win situation for all in the long-run.
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