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Property prices, moving upward or correction?

Property rates continue to be a bone of contention even in the year 2008. In the year 2007, property rates showed some fluctuations in terms of prices and demands in certain parts of the country. But, on the whole, the seem to be on an upswing. The year 2

Pooja Gawde

21 May 2008

Property rates continue to be a bone of contention even in the year 2008. In the year 2007, property rates showed some fluctuations in terms of prices and demands in certain parts of the country. But, on the whole, the seem to be on an upswing. The year 2008 seems to be a ray of hope, given the scenario till now.

As it goes, up to this point in time, loan-india/selectproperty.html" target="_self" title="Click herer to know how to select property">property purchase seems to be on a low. The much expected and awaited property price correction seems to have finally come through. Media reports as well as many established property consultants and realty players have accepted this fact. The property prices seem to be witnessing a phase of price correction.

Even the metros seem to be affected by the price correction. Not much significant increase in property prices in metros such as Mumbai, Bangalore, Chennai and National Capital Region (NCR) has been seen.

In the face of property correction, new trends in the housing segment seem to have emerged. There are various reasons which could have triggered the property price correction.

The one that is seems most apparent is that banks and housing finance companies decided to bring down their interest rates on loans courtesy the rising loan defaults and the slowdown in credit growth.

Ideally, this should have triggered a price hike if pitted against the demand and supply equation. But, the banking business did not get a boost as property prices were at its peak in the last quarter of 2007 and the beginning of 2008.

The cost of the funds available to the builders started rising and has come to a point where builders have roped in private equity firms to provide them with low cost funds. This may have forced some small and middle-level builders out of business and forcing them to sell their projects.

Another reason seems to be much obvious and expected. In every industry, there is a period during which the industry is on a constant upswing (as seen in case of the real estate industry) since early 2000. The price correction was an expected trend, expected to emerge sooner or later.

Having said that, property prices seem to be unlikely to hit to the bottom and may swing up quickly.

What can be seen as a silver lining to this black cloud is that recently, the Reserve Bank of India reduced the provisioning requirement for home loans up to 30 lakhs, decreasing the rates for home loans in this segment.

So if you read that the Asian real estate market is still ripe for investments don't smirk...it seems to be all true!