Slowdown hits home as property prices soften- Business News
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Slowdown hits home as property prices soften

The much-awaited price correction seems to be finally happening. In the April to June quarter, house prices fell in 22 out of 26 cities tracked by NHB's Residex compared with the March quarter.

  • September 13, 2013  
  • |  
  • UPDATED   13:45 IST
Slowdown hits home as property prices soften

The Indian economy is not in the best of health. The real estate market has felt the impact of the slowdown and been subdued for a while now.

But is it headed for a crash as some prospective buyers seem to believe?

The National Housing Bank's Residex (residential index) seems to indicate that India's real estate market has managed to weather the downturn so far. For instance, over one- and two-year periods, the index shows a sharp rise in property prices in Delhi, Mumbai and Bangalore.

However, the much-awaited price correction seems to be finally happening. In the April to June quarter, house prices fell in 22 out of 26 cities tracked by the Residex compared with the January to March quarter.

"The primary reasons for the slowdown are strict monetary regulations due to high inflation, the central bank's new norms for lending to the real estate sector and property prices touching peak levels," says Vineet Singh, Business Head, 99acres.com, a property listing website.

Does this mean the trend will continue?

There may not be a uniform trend across the country as the real estate market is localised and each location has its own dynamics.

For instance, in Hyderabad, prices have fallen because of the political turmoil while in Kochi prices have softened with the drop in the amount of money repatriated by non-resident Indians.

Many areas of Delhi, mostly prime South Delhi locations, have seen a price fall of 10-12 per cent in January to June compared with the year-ago period, according to a report by CBRE South Asia, a property consultancy. In contrast, prices have risen marginally in Noida, a Delhi suburb, while there has been a 5 per cent price rise on the Noida-Greater Noida Expressway.

Prices have remained more or less stable in most Mumbai localities but there has been reasonable appreciation in the suburban locations, according to CBRE .

"In Mumbai, Western Suburbs, Extended Eastern Suburbs, Navi Mumbai and Thane saw capital appreciation of 8-11 per cent (in January-June) as compared to the second half of 2012. Prices in North Bangalore rose 8-10 per cent, while the more established Central, Off Central and Southern locations witnessed an increase of 4-6 per cent in the premium segment," says the CBRE South Asia report.

Builders, meanwhile, continue to launch new projects and use innovative marketing to improve sales. "Despite the poor economic sentiment, residential supply spiked during the January-June period. More than 65,000 units were launched in the leading cities compared to about 48,000 during the second half of 2012," says the report.

Most of the new launches have been in emerging locations in the peripheries of the big cities. "In metro cities, there is a trend of big builders offering discounts on existing projects or launching new projects at subsidised rates, due to which the small builders are following suit," says 99acres.com's Singh.

Analysts say property prices will remain under pressure for some time but are bound to rise in the long term. The shortage of housing in urban India supports their assessment.

First-time buyers should go ahead with their plans to purchase property, say financial planners. The house helps you save on rent as well as get tax benefits, they point out.

Investors, of course, need to be more careful. Stay away from high-priced properties as demand for affordable properties is much more than that for the premium ones.