1. Oneofthemainreasonsthatwehavealargeinventoryofunsoldhousesistheskyrocke ngpricesoftheseproper es.And
theonlywaytoseearevivalintherealtysectoristobringthesepricesdown.
In the forth-bi monthly policy statement, the Reserve Bank of India surprised one and all by cu ng the repo rate (or its
lending rates) by 50 basis points. In the current economic scenario, the said rate cut was welcomed by all. It was a much
needed boost for the economy. Different sectors are going to benefit from the rate cut in short to medium-term. This move
by the RBI Governor Raghuram Rajan aims to increase liquidity in the system, but shall not be of much support for the realty
sector.
CurrentrealestatescenarioinIndia:
TheIndianrealtysectorisgoingthrougharoughpatchsincethelastthreetofouryears.Sofar,in2015almost6Lacinventory
ofresiden alproper es,ineightmajormetroci es,ares llunsoldanditwilltakeatleast2.5moreyearstoexhaust.
As per a recent study of Jones Lang LaSalle (JLL), “Sixty nine percent of the unsold homes in Mumbai are priced more than `1
crore? This is when the weighted average price of a home in the city is around `1.3 Crore.” However, builders choose to
ignorethisfactandmaintainpropertypricesathighrates.
If the number of unsold proper es is high, it would be wrong to blame it solely on the high interest rates. Home loan lending
con nuestogrowatagoodpace.Oneofthemainreasonsthatwehavealargeinventoryofunsoldhousesistheskyrocke ng
prices of these proper es. And the only way to see a revival in the realty sector is to bring these prices down. Studies tell that
mostoftheseproper esareunrealis callypriced.
However,buildersarenotwillingtocutdowntheprices.
IMPACT:LowInterestRatesVsHighPropertyRates:
Falling interest rates don’t have much of an impact on EMIs. For instance, the EMI for a home loan of `50 Lac, at an interest
rate of 10% and tenure of 20 years, is `48,251. At an interest rate of 9.5%, supposing the banks pass on the 50 bps repo rate
cut to their customers, the EMI for same loan amount and tenure will be around `46,607, almost `1,650 less. A difference of
fewthousandrupeesin EMI won’treallystoponefrombuyingahousewithaloanof`50Lac.
However, if a property worth `50 Lac is priced as `70 Lac, the buyer may definitely think twice before pu ng in his hard
earned money in that property. Moreover, the person who is looking for a home loan of `50 Lac, would first need to arrange
minimum amount of `12.5 Lac for a down-payment. Which means, the moment the price of the property goes up, the
amountofdown-payment,thatheneedstoarrange,tooincreases.
So, for a buyer what ma ers the most is actually the price of the property he wants to buy and not rate cut offered by the
central bank. This clearly indicates that the list of unsold proper es shall con nue to remain unsold ll the real estate
developerspricethemrealis cally.
10.37 IST, Oct 14, 2015 | Dalal Times Bureau
This ar cle has been contributed by:
Amit Choudhury
Head –Alternate Channels & Real Estate,
Way2Wealth Brokers Pvt. Ltd.
h p://www.dalal mes.com/ar cle/india-inc/realty-not-interest-rates-but-high-prices-of-proper es-hurdle-to-growth-120918.aspxAr cle Link:
Realty: Not interest rates but high
prices of proper es hurdle to growth