Real estate prices set to rise 20% in Q4

Written by Mona Mehta | Mumbai | Updated: Nov 13 2009, 05:30am hrs
Real estate prices, including residential and commercial, are likely to go up 15-20% in the next quarter, across Indian cities, say top builders and international property consultants. The reasons they cite are hike in land cost, infrastructure cost and a rise in demand for homes by 10% to 15% across Indian cities. Industry experts believe that the rise in real estate prices will come at a time when the Reserve Bank of India (RBI) is likely to hike interest rates on home loans by 25 to 50 basis points in the next quarter.

However, the real estate sector seems to be one of the worst hit across all geographies in the economic slowdown. In addition to high taxes, transaction costs continue to remain high across geographies and needs rationalisation, comments Ganesh Raj, partner and industry leader, real estate practice, Ernst & Young.

Anand Narayanan, director, residential, Knight Frank, told FE, The RBI is likely to increase interest rates on home loans by 25 to 50 basis points. This is because, RBI is focussed on anti-inflationary measures. RBI has released liquidity into the system and cut CRR, putting upward pressure on inflation. Over the last one year, RBI has reduced bank rate by 150 basis points, as a result of which credit is available at much cheaper rate.

Every year, there is a gradual (by 15% to 20%) increase in real estate prices in homes and offices mainly due to hike in infrastructure and land cost. In the next one to two quarters, there will be slow escalation of real estate prices across Indian cities, says Abhisheck Lodha, director, Lodha Group.

Niranjan Hiranandani, MD, Hiranandani Constructions agrees that real estate prices in homes and offices will hike by 15% to 20% in the next few weeks. Now, large public sector banks, in association with builders will introduce new schemes pertaining to interest rates on home loans which will fuel demand. However, more impetus should also be provided for creating supply for affordable housing.

According to Dilawar Nensey, joint managing director, Royal Palms India, With the rise in demand for housing, the demand for housing loans too shall increase, thereby tempting lenders to increase the interest rates. However, we do not foresee any change in the near term in the interest rates especially in the sub-Rs 15 lakh category. Even when they rise, the increment will not be more than 1.5%. For instance, Royal Palms has sold over 700 units in the affordable housing segment in a span of four months, valued at about Rs 150-160 crore, which is a sure sign that the real estate sector is once again reviving.

Real estate prices have gone up by 25-30% during the third quarter of the financial year 2009-10 in Mumbai. This is comparatively higher than South Delhi which has recently witnessed 15% spurt in prices, Pranay Vakil, chairman Knight Frank India said. In south India too, especially Bangalore and Chennai, realty prices are likely to go up 15-20%.

Prices have already started firming up, especially in certain pockets within the country. The prices can only increase from here as whatever buying we have witnessed has been due to actual users and not by investors or speculators. Of course, the maximum growth is expected in the affordable housing segment which is between Rs 20 lakh and 45 lakh in urban cities, Nensey added.