PRICE CORRECTION IN REALITY SECTOR
- PRICE CORRECTION IN REALITY SECTOR
There is a possibility of correction in realty prices, judging by the decision of the Reserve Bank of India, to hike repo and reverse repo by 25 basis points each. The already flagging demand is likely to fall further due to higher home loan rates. Pranay Vakil, Chairman of Knight Frank India said that despite that there being no specific mention of the realty sector (in RBI policy review), they continue to believe that the prices will soften by 10-15% before the end to this financial year. This is mainly due to volumes being low and liquidity being tight with developer. Also, the interest rates on housing loan continue to be high affecting volume of transactions in the industry.
The Central Bank in its quarterly monetary policy review meet, had hiked repo rate- at which RBI lends to Banks - to 6.50%; and reverse repo - the rate banks receive for depositing funds with RBI - to 5.50%. Interest rates that have started moving higher are impacting affordability and delaying decision making. Because of all these factors, the demand is not getting converted into sales since past two quarters. A further hike in lending rates is expected to expedite the correction process, the analysts said.
Most of the realty industry experts had already forecast that fall in number of transactions, which started in October, is expected to be followed by a correction of around 15% in key markets of Mumbai and National Capital Region. After gaining nearly 40% in the past one year, residential realty prices in Mumbai had already surpassed their last peak witnessed in 2007. These high prices fall in affordability and rising home loan rates are pushing customers back. But a sharper rise, as sections of the market had expected, would have impacted prices and home loan growth severely.
Deepak Parekh, Chairman, Housing Development Finance Corporation said that everybody is relieved that the rates have been hiked by only 25 basis points. The way inflation was going up; here was a justification for even a higher rate hike. The liquidity still remains tight. The banks and financial institutions will have to raise the lending rates as the margins are squeezing. And eventually all retail loans rates will go up.
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