Study points out further decline in the real estate market

According to a research analysis the $15 billion real estate market which witnessed a sales drop of 60 per cent in the metros, might worsen further if reversal in rising interest rates for housing is not tackled urgently.

A study was conducted by industry body Assocham on 'Impact of Rising Home Loan Rates'. According to the study the housing sector which has declined considerably to 26.6 per cent in 2006-07, in the current fiscal year it might slow down further to touch between 17 to 20 per cent due to rising home loans.

The study stated that major expansion drive in tier II and tier III and even tier IV cities, for providing housing units to neglected lot of society, would generate the growth of this sector between 40-45 per cent this year, but it will slow down in metros and large cities by 2010.

''Since no suitable corrective measures to contain the interest rates, particularly on housing segment have been effected, nearly 60 per cent of home aspirants are staying away from the pre-launch sales,'' Chamber's President Venugopal N Dhoot said in a statement.

The study said usually the builders depend on the advance amount received by way of pre-launch bookings, which is collected well before the starting of construction work, as the loans are becoming costlier so the buyers are not keen to expose themselves to an extended time period.

Regarding the differential between EMIs, prevailing at 7 per cent and 12 per cent, the study stated that the change in EMI for housing loan of Rs 10 lakh comes out to be Rs 3250 and this puts an additional burden of Rs 39,000 per annum on end-users.

Similarly, on a housing loan of Rs 30 lakh, EMI differential works out to be Rs 9770 which adds to a fiscal burden of Rs 1,17,240 per annum. On 50 lakh housing loans, the EMI change is estimated at Rs 16,290 putting an annual burden of Rs 1,95,480 on those who have taken housing loans in this sector.

According to the study the speculators play a significant positive and negative role in pushing the prices of property by more than 20 per cent and some times rise in interest rates give opportunity to the speculators to dictate the prices.

As per Chamber's research, the recent boom in property market along with low interest rate regime had served as a breeding ground for speculators. And the speculators consists of a whole range of players such as small property brokers, big or small retail investors apart from big players.