Runaway house price boom seen slowing: Reuters poll

After years of double-digit growth, house price rises in major Indian cities are expected to slow to just under 8 percent next year as a cooling economy and rising interest rates deter new buyers, a Reuters poll showed.

The survey of 11 property market analysts conducted over the past three weeks was for house prices in Asia's third-largest economy to rise 7.8 percent next year, well below the current rate of consumer inflation of around 10 percent.

The findings of the latest India housing market poll are similar to recent Reuters polls conducted in the United States, Canada, Britain, China and Brazil, where home price rises are also expected to lose momentum but not fall.

Home sales in India slowed this year and unsold inventory with builders has increased as economic growth in the broader economy has decelerated quickly to half the 10 percent rate it was running at before 2008.

But the main problem, in a country where almost one-quarter of the population earns less than 50 cents a day, is the price.

"In some of the key markets in the country property prices are sky high," said Sachin Sandhir, managing director at RICS South Asia.

"Due to uncertainty about the economy, high interest rates and rising inflation, developers are holding on to their prices, making some locations unaffordable."

Indeed, a 2,000 sq.ft (185.8 sq.metre) apartment in the posh South Mumbai neighbourhood of Malabar Hill costs more than $2 million. That is not far from the average three-bedroom unit in Manhattan, New York City, which costs around $2.6 million.

Although the majority of homes in Indian cities are nowhere near that expensive, it shows how far real estate values in India's financial capital have risen. And dwindling incomes have put low-cost homes out of reach for many people.

Most of the urban price rises are expected to take place in the southern coastal city of Chennai, followed by New Delhi and its suburbs and Bangalore, while already high prices in Mumbai will likely stagnate.

Analysts gave property in Mumbai and Delhi, India's two biggest cities, an overall rating of 9 on a 10-point scale where 1 is extremely undervalued, and 10 is highly overvalued.

That is a much higher rating than in similar Reuters polls conducted around the world. Prices in the UK, which have re-touched record highs by some measures and are soaring in London, were rated 6, while those in Canada were rated 6.3.

INTEREST RATE RISES BITING

The Reserve Bank of India's determination to bring down broader inflation in the economy has also slowed the market.

The RBI hiked its benchmark repo rate twice in September and November as it tries to rein in soaring prices and there is an outside chance it could tighten again at a meeting next week. It even nudged hesitant commercial banks to pass on the increases to borrowers.

A home loan of up to 3 million rupees from the country's largest home finance company, HDFC, now costs 10.5 percent per year, up 35 basis points since the start of the year. A bigger mortgage costs more.

Buying a house in India has traditionally been a sentimental decision, not for investment. But soaring prices in recent years has led a growing middle class to turn to real estate as a means of generating wealth.

Unsold inventory of development properties aimed at that new type of buyer is now a cause for concern, say analysts.

"How can someone take a long-term loan without income growth or guarantee?" asked Samantak Das, chief economist at Knight Frank India. "Inventory pressure on developers in Mumbai and Delhi is actually going up."

According to Knight Frank research, it takes nine quarters for developers in Mumbai to sell existing inventory, almost twice the five quarters it took in December 2011.

New launches in the city plummeted over 40 percent compared to peak levels in 2010 as developers focussed on selling current inventories, according to their recent report.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • The economic survey falls in step with the BJP’s election manifesto

    It’s always tough to find something wrong with the annual economic survey as it only articulates the government’s desire to set its house in order

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Why higher education needs innovation

India is such a great country that it creates complexity ...

Zehra Naqvi

We must overcome the fear of death

It is the biggest irony that the only thing that’s ...

Dharmendra Khandal

Jawai leopards and locals can coexist peacefully

At first glance, the Jawai landscape seems like a large ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture