Real Estate Boom

Over the period of three to four years the real estate market has witnessed a real boom wherein prices of property almost multiplied incalculably. It gives a very comforting feeling when one checks the market value of his property with a neighborhood property dealer. And all those who had invested in property a few years ago are actually making merry nowadays.

Despite the unending uptrend of the stock market and sky mounting gold prices, home ownership has been the most lucrative investment over the last three to four years. Bigger, better, pricier are the three words that would sum up the whole real estate scenario across the country. With integrated townships coming up and designing styles going westwards, the customer is ready to pay a premium for the facilities like modular kitchens, gym, swimming pools, etc. These luxury apartment segment nowadays’ carry a price tag in crores.

With Reserve Bank of India raising the lending rates on real estate and housing loans by 50 basis points and 25 basis points respectively and thereby forcing top lenders to hike their lending rates by almost 2-2.5% over the last 18 months. Even with the housing loan rates going north off late, the banks are still not expecting a drop in the loan demand yet as India estimates a shortage of over 20 million houses. The banks expect a jump of 25-30% in home loan disbursals in 2006-07 from Rs. 1,65,000 crores disbursed previous year. The reasons are not distant to find. Hefty pay packets being doled out to private sector employees, huge demand for commercial space, improving standard of living and millions of Indians eager to get into the housing bandwagon the demand for real estate is surely going to rise.

However, a correction in market prices also seems round the corner wherein the rate of growth of prices will be arrested to an extent. With prices going through the roof and financing becoming costlier leading to a clear cut indication that the speculative buyer interest is also coming down.

Not everybody echoes the correction theory. The big developers feel that the boom in property is here to stay. Economy cruising at 8% growth rate, heavy pay packages and genuine end user demand will make the boom sustainable. Head (Retail Assets) ICICI Bank, Mr. Rajiv Sabharwal feels that the rising housing loan rates have not impacted the demand as the rates are still affordable in the current situation.

Colonies, societies, flats are building up at a break neck speed. This increase in supply coupled with rising interest rates should keep the market from overheating.