Extract from Economictimes.com on 25th June, 2012
According to a recent Knight Frank report, Indian real estate prices rose 12% in the past year, the third highest in the world.
Reserve Bank data shows housing loan growth slowed to 12.1% for the year ended March 2012 from 16% in the previous year. Also, before real estate prices peaked in 2008, big lenders were managing to grow their home loan portfolio at an annual average of 25%.
"Demand in metros has slowed down in April-May. This is mainly due to high interest rates, which have made buyers hesitant to buy property. There are also very few new projects being announced as builders' communities have been affected by high interest rates too," said VK Sharma, CEO of LIC Housing Finance, the country's third-largest housing finance company.
Loan growth at LIC Housing Finance slipped to 17% in 2011-12 from 28% a year ago, forcing the company to set a lower target of 20% for the current fiscal
State Bank of India's housing loan disbursement grew 15% in 2011-12 against its target of 20%. The country's largest lender sanctioned Rs 28,000-crore of housing loans last fiscal.
"During January-March, there were hopes of business picking up, but April-May has been slack. Typically, this period is slower, but this time around it was slacker than last year. FY2013 has been quite disappointing due to both local and macro-level issues," said a senior official of SBI.
He also highlighted that there are markets like Mumbai, NCR and Bangalore that have unabsorbed supply, and in some cases, it is close to two years' oversupply.
But what is surprising in all this is that prices are showing no signs of coming down. Though consumers are shying away and there is enough evidence of this and volumes have dipped, debt-trapped developers are still not ready to reduce prices of apartments.
For the quarter-ended March, prices in the National Capital Region rose 33% while Mumbai and Bangalore posted 17% and 8% jump, a recent report from Liases Foras Real Estate Rating & Research showed.
"Demand has slowed down, number of transactions is falling. In the top 10 cities, sales volume has dropped 10% in the last one year. Mumbai is the worst-affected market with a 40% decline in transactions, but prices have remained more or less stable across these regions," said Binaifer Jehani, director, CRISIL Research.
Some Mumbai-based developers such as Kalpataru Group, Oberoi Realty, Lodha Developers, Wadhwa Groupand Nirmal Lifestyle have actually raised prices in the last few months by more than 10% in Mumbai's central and western suburbs as well as in south Mumbai.
Although the hottest property market has an inventory level of over 120 million sq ft, equivalent to 40 months' average sales volume here, not much of this is available for immediate possession. This is helping developers with projects that are close to delivery and resale flat owners seek premium for their units.
The NCR, being the largest residential market, faces challenges at unsold inventory levels. However, the market has shown stability and there has been no drastic dip in the sales velocity in 2011-12.
In the most stable property market of Bangalore, too, buyers are either deferring their decisions or looking at suburbs to buy properties.