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Real Estate prices remain firm in the face of falling demand

Regardless of the steep fall in real estate transactions in recent months, prices have remained steady, Reserve Bank of India’s (RBI) macroeconomic and monetary development report said on Monday.

RBI said that though interest rates remained high, home loans disbursals have gone up while overall credit off-take has fallen. According to RBI data, interest on home loan has gone up by 1.5 – 1.75 per cent since December 2010.

“Property markets are facing moderation in demand, but price correction has not occurred as real estate firms are holding land banks and slowing new launches and sales to retain pricing power.

Higher housing loans coupled with price rigidities in the housing market reflect the continued pricing power with the developers as also the increasingly stretched balance sheets of residential buyers,” said RBI in the report. In order to curb inflation and bring down the demand, RBI has increased key policy rates 13 times since March 2010.

However, number of transactions has gone down implying that many other households are getting priced out from the housing market. Data for July-September 2011indicate further increase in property prices in most cities though at a slower pace. Also, in contrast with the preceding quarter, there was some increase in transaction volumes, said RBI.

“Retail loans, especially home loans have been growing at a steady pace. It is the corporate credit that has fallen. Demand for home loans up to Rs 50 lakhs have been witnessing growth,” said a senior official, Bank of Baroda.

“Despite home loans becoming costlier, the demand for home loan remains robust. Home loan remains one of the fastest growing segment and we have not witnessed any decline in home loans,” said SBI official.

The RBI’s quarterly House Price Index (HPI) based on the data on transaction of properties collected from registration departments of respective state governments, now covering 9 cities, indicates a hike in quarter on quarters prices in all cities during June – September 2011 except for Bengaluru. On the other hand, the data on volume of transactions for the same period show increase in the number of transactions in six cities, except Mumbai and the recently included cities of Kanpur and Jaipur.

Via : Mydigitalfc

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