Cheap Realty Not Reality
While much is being reported in the media about the significant dip in property prices, in actual practice most large developers are still holding on to their prices.
Though off course, they are trying to boost sales by throwing in freebies such as free stamp duty and registration, free parking, no charge for floor rise, etc.
Coming to home loan rates banks are decreasing their interest rates on,home loans,and property prices are reportedly softening.
But will it be effective in raising consumer demand?
Does that mean that it will be easier to get loans ?
Will banks give loans willingly?
Will consumers come forward to take more home loans?
The questions remain
The fact remains that to a large extent, the lending and borrowing scenario has not brightened in spite of banks reducing the,loan,rates and some news of dipping real estate prices. Of course existing,home loan,consumers are happy that their inflated EMI burden will reduce somewhat.
However it seems these boosters are not sufficient to lift the spirits of Indian consumers who are grappling with financial insecurities. The overall economic slowdown, global news reported by the media, job loss, job insecurity, uncertain future of businesses/enterprises, volatility in the stock markets are a few reasons that may keep potential borrowers from investing in residential property (and therefore taking any home loans). Moreover additional taxes on real estate such as the 5 per cent value added tax (VAT) and 4.5 per cent service tax are obstacles in the way of boosting demand, be it for property or property loans. These costs have to be borne by the buyer.
To add to the number of speed-breakers in the way of these two inter-dependent sectors, there are the tightening eligibility norms. Lenders have made their norms more stringent. They have raised the margin required for a home loan because property prices could go down further.
The real up tick in demand will come when the consumer feels confident about taking on long term liabilities. We should watch for the Consumer Confidence Index (CCI) figures, which have been slipping downwards almost every quarter of late.
Predictions in a volatile scenario such as the current times are difficult. Interest rates need to see a further revision southward to be able to boost the demand for home loans. Similarly, property prices should see a visible correction to encourage the demand for realty and thus home loans. But most importantly, consumer confidence needs to be boosted.
Maybe wait and watch should be the buzzword for now.