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Noida Property News: Rising interest rates and an
'overheated market' are stabilising residential property prices in some
key pockets, but a steep correction is unlikely.
According to a cross-section of experts, including bankers, a correction
is unlikely for the very reasons that had initiated the housing boom - a
growing economy, affordable houses, rise of nuclear and double income
families. |
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They also argue that while increasing interest rates are
bound to have some impact, it will not be dramatic.
"The average interest rate today is 10 per cent. But, after factoring in
just the tax benefit on the interest, the effective tax rate is around 7
per cent. It is not as expensive as it sounds," said an executive with
India's largest private bank.
Affordability is a key issue today. While some say the increase in
property prices is owing to the demand-supply mismatch, another banker
says it all boils down to affordability.
"Today, it takes just about five annual salaries to buy a house, compared
to 22 salaries a decade ago," he said.
However, he pointed out that housing has become more expensive as it used
to take 3.5 annual salaries to buy a house in mid-2003 to early-2004, the
so called 'golden period' for buying houses.
During that time, property prices were yet to take-off and interest rates
averaged at 7.5 per cent for floating loans versus the average 10 per cent
for similar loans today.
"People are continuing to buy houses, but more cautiously. If developers
were booking 18-20 flats at an average every month, they are now booking
15-20 per cent less," said Poonam Mahtani, national director for
residential, Colliers India.
One reason for the continued buying is corporates reducing their instance
of leased houses for executives and, instead, giving enhanced housing
allowance (included in the cost to company) to employees.
"Instead of just spending that money, people are choosing to create assets
by purchasing two or three bedroom houses. Today's end-user is more
conscious of the future," said a banker.
"Capital appreciation is not sustainable at today's property rates. Prices
in prime locations of Delhi and Mumbai will have to steady to become
sustainable," said another real estate consultant.
According to the market buzz, stabilisation of prices is already
occurring. "Builders are not able to sell flats in the capital city's
prime locations such as Greater Kailash and Defence Colony, as the asking
price is too high," said a broker.
Even large companies are having troubles selling their flats at Gurgaon.
Take the case of DLF Ltd's latest offering in Gurgaon, the high-end Park
Place apartments.
"They were launched late 2006 and since then, the company has been able to
sell only 45 per cent of around 1,500 apartments. Investors and
speculators buy DLF's and MGF's apartments when the companies offer Rs
500-700 discounts on the first day of the launch. So, while DLF is selling
2,000 square foot apartments Park Place at Rs 6,500 per square foot today,
investors had bought them for Rs 6,000 per square foot and are now selling
them for around Rs 6,250 per square foot," said another broker.
This implies that investors are gaining at the company's expense.
"The Gurgaon and Greater Noida markets are overheated, potential buyers
are turning away and yet the companies are not giving in by reducing
prices. It is the ideal situation for investors. These two markets are
facing a slowdown of almost 15-20 per cent," said the head of the
residential department in an international real estate consultancy firm.
by http://www.business-standard.com
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