Not a house of cards

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: In the last five years, house prices in most parts of the world have surged ahead with barely a wobble. In India too, the 2004-05 housing boom has seen the 1996-97 peak property price levels being surpassed. And while it seemed the party would never end, there are concerns today that seem to indicate that prices may not keep defying gravity for ever.

House prices in most parts of the world now look set to come down. But will it be a soft-landing for the property boom or are we in for a price crash?

Property market surveys in different countries reveal that the frantic pace of rise in prices as well as rental returns will cool off with enough fresh stock coming into the market over the last one year and the hardening of interest rates.

For example, after the increase in the Federal Reserve’s benchmark rate in the US, the short-term mortgage rates in the country have increased. However, the long-term mortgage rate has remained stable.

Taking a cautionary stance, the Federal Reserve chairman Alan Greenspan, termed it “interest rate conundrum.” The phrase refers to the “intricate and difficult problem” as to why longer-term interest rates remained relatively low even as short-term rates have risen.

In his speech before the House Budget Committee in early March, Mr Greenspan said, “History cautions that people experiencing long periods of relative stability are prone to excess. We must thus remain vigilant against complacency.”

The European Central Bank is also contemplating an increase in the minimum borrowing rate to 2%. And interest rates are seen hardening in many other countries, including India. This is primarily because of the increasing inflationary pressure following the global oil price rise.

Given the economic recovery in 2004 and a healthy outlook for 2005 in almost all countries, the demand for residential properties continues to remain strong from the beginning of 2005 calendar year.