The global consultancy firm feels that the present condition will continue for some more time. In fact, the rental market has also witnessed stagnancy in the second quarter, which suggested the lack of demand for new houses in the market. As the inflation continues to rise, the Reserve Bank of India will not allow the interest rate to fall. The interest rate on home loan has already touched 12% per annum. This has made buying houses beyond the reach of the middle class people. The equated monthly installment (EMI) of Rs 30 lakh loan for 20 years is over Rs 33,000, which a middle class person finds difficult to afford.During the boom time, the interest rate on home loan was around 7.5% and the EMI on Rs 30 lakh loan was about Rs 24,000.
The EMI has gone up by over 36%.In places where the average price of a two-bedroom apartment is around Rs 30 lakh, at the present interest rate, it has become unaffordable for average income family having a monthly salary of Rs 50,000 per month. In and around the suburbs of Delhi, however, where alot of development is taking place, the development scenario is a bit different. The developers are holding back the prices here. However the investors are finding it difficult to hold on to their properties . As most of the investors have bought these properties on borrowed money, they have to pay interest on the outstanding amount. In their monthly EMI, the major portion is constituted of the interest portion. A senior investor, argued that if he holds his investment for one year, he would have to pay at least 12% of the outstanding amount.
But, the chances that after one year, he will be able to sell it at 12% premium over the present price are very low. At the same time, even if he sells the property at 5% discount to the existing price, he can invest the money to earn a return of around 10%. After one year, still he will be better off than if he does not sell the property. Such a bleak outlook on the investment in the real estate is exerting extra pressure on it.Even if the developers are not selling at a discount,the investors are putting pressure on the market by selling at the discounted prices. A developer claims that the margin has already been squeezed in the last two years. CMD of Parsvnath Developers Pradeep Jain said that in the last two years, the input cost has gone up substantially.
The steel prices have jumped by over 50%, cement prices by around 30% and the labour cost has also gone up substantially. But, the sale price of residential projects, because of lack of demand, has not gone up. Jain said that his company has increased the price of its apartments in the last one month to pass on a part of the rise in the input cost. But, many other developers have not been able to pass on the rise in the cost. This has squeezed the margin. In fact, many developers are postponing the launch of their new projects. Some developers have returned the booking amount to the buyers as only a small part of the total projects have been sold. In fact, the builders argue that cost of construction of an average apartment has gone up to around Rs 1,200-1,800 per sq feet from Rs 600-900 per sq feet a couple of years back. At the same time, the land cost also comes out to be in the range of Rs 1,500 per sq. ft. Therefore, builders said developers can’t sell a residential apartment at less than Rs 3,200 per sq. ft. If the land is acquired around 2004,he can sell at around Rs 2,800 per sq. ft as the land cost for him would be in the range of Rs 1,000 per sq ft.
Analysts feel that this will lead to a sudden jump in the price when the interest rate will fall. Because of such a steep rise in the interest rates, not many transactions in the real estate market are taking place. This has put pressure on developers.
The slowdown in the sales in Hyderabad real estate has become apparent in the last three months, as home loan rates continue to rise. “In the April-June quarter, capital value of residential properties has stagnated,”said Cushman and Wakefield (C&W) in its latest report.