India Real Estate Monitor » Inflation

Realty Prices To Further Shoot Up

Pakhi Kshitij — Fri, 09 Jul 2010 03:01:17 +0000

nIt is very likely that the Real Estate prices in the country will shoot up further with the Finance Ministry’s decision of not withdrawing 2.5% service tax. This move was proposed by the Urban Development Ministry in the budget of FY10-11.

The budget had earlier proposed this tax on all under-construction projects. And it is common knowledge that eventually the customers will have to bear the burden and not the developers.

The declination came as no less than a shock to the Urban Development Ministry. Its Minister Mr. S Jaipal Reddy argued with the Finance Minister Mr. Pranab Mukherjee in the favor of the move in April this year but it could yield no results evidently.

The ultimate sufferers will be the Indian middle class who already has to bear the burden of inflation in almost all other spheres but also dreams of owing a home of their own!

CRR cut infuses liquidity in Indian market

rajani — Wed, 15 Oct 2008 06:05:16 +0000

Leading real estate players are optimistic about the RBI’s move to cut CRR and believe that this will help the flow of funds in the realty sector, enabling faster execution of projects. The CRR cut can also influence the boost of the realty market, provided there is a decrease in interest loans.
Mr. Pradeep Jain, Chairman- Parsvanth Developers, Mr. Rohtas Goel, Chairman and MD- Omaxe and Mr. Punit Beriwala, MD-Vipul’s Ltd, are all in approval of this step taken by the RBI and feel that it will revive and stabilize the market and are also hopeful that this may impact a reduction in the interest loan.
However, Mr.Parry Singh, MD-Red Fort Capital, says that for the success of this step, the RBI needs to strike a balance between the provision of liquidity and control of inflation, through CRR or SLR reductions.

Inflation Affecting Real Estate Prices

rajani — Thu, 07 Aug 2008 07:22:32 +0000

With inflation touching 12.98%, realtors here are finding it difficult to hold their price line and plan to increase rates for residential units by Rs 100-500 per sq ft later this month.
According to Confederation of Real Estate Developer’s Associations of India (Credai) Bengal, there has been a 25% increase in the construction cost of residential buildings over the last one year, almost double the increase during last year over 2006.
“Construction cost has increased from Rs 1,265 per sq ft in 2006 to Rs 1,811 per sq ft in July 2008, or by 43%,” said Pradeep Sureka, president of Credai Bengal. The city has added almost 10 million sqft of real estate space in last one year.
While steel prices have gone up by 107% in the last two years to Rs 45,500 per tone, cement has become dearer by 39% at Rs 4,900 per tone. “Even cost of bricks has doubled in the last two years to Rs 4.40 per piece,” Sureka said.
In April this year, Prime Minister Manmohan Singh had asked steel companies not to increase prices and the big steel makers had responded by holding the price line for three months.
“If the steel companies start increasing prices after August, prices could go up by Rs 500 per sq ft,” said S. Rungta, VP of Credai.
According to Credai estimates, direct and indirect taxes add nearly 27% to the cost of a six-lakh sq ft residential project with 30-40-metre high buildings. For a property selling at Rs 2,600 per sq ft, a buyer has to shell out Rs 211 as stamp duty and registration charges. Indirect taxes have already added around Rs 483 per sq ft.
Realtors said their sales have come down by more than 30% in the first quarter of 2008-09. Many of them will be gauging the customer mood at a property fair scheduled to open on August 11.
“We have requested Credai members to hold prices till Home Front-2008,” said Sushil Mohta, executive body member of Credai India, referring to the annual event.
However, banks said housing spends in West Bengal pick up after the second quarter, after people have done their festival spending.
According to SK Goel, chairman and managing director of Kolkata-based Uco Bank, the demand for housing in Kolkata and West Bengal starts picking up after the festive season.

Banking And Realty Stocks Likely To Feel The Heat

rajani — Wed, 30 Jul 2008 12:35:45 +0000

RBI decisions to hike two key policy rates are expected to affect stocks of companies from sectors like banking & financial services, and real estate more than any other sector since these sectors are more vulnerable to higher interest rates than others . However, given that most stocks from these sectors are already badly hammered since their January highs, market players do not see much downside from current levels.

Market players said with RBI’s more hawkish view to rein in inflation by tightening the supply of money, interest rates are expected to go up. In a higher interest rate scenario people borrow less from banks and other lenders and these companies face a tough time. In a higher interest rate scenario, banks also have to make higher provisions for their losses in their bonds portfolio which are marked-to market . A note from Religare Securities said that banks like Union Bank of India, Allahabad Bank, Indian Bank would be the most impacted on this account.

Higher interest rates also lead to higher home loan rates that in turn lead to people deferring their home buying and a drop in demand for homes. However, there are silver linings to the auto sector stocks. Market players said when interest rates go up, people initially show some resistance to buying two wheelers and passenger cars, but demand again picks up with a lag of two-to-four months. The scenario for the real estate sector is slightly different since other than rising interest, the slowdown in the sector is also because of over supply. Ambareesh Baliga, VP, Karvy Stockbroking said, “This sector is suffering more because of excesses in the sector, and not much because of rising interest rate”. Baliga added, ” There has also been excessive speculation in the sector during the past few years and now it’s cooling off”.

Impact Of Interest Rate On Real Estate And Housing Loan

rajani — Fri, 27 Jun 2008 12:08:26 +0000

Indian real estate firms expect a hit on margins for the next few quarters as the central bank’s move to raise interest rates this week will push up costs and keep potential buyers away from the market.
Developers, already facing a demand slowdown, have refused to lower the price line as they seek to make up profits despite high land costs and curbs on funding. However, higher interest rates in the economy could push them to choose survival over pride.
The Reserve Bank of India late on 24th June raised its key lending rate and cash reserve requirement by 50 basis points each to curb price pressures. Inflation jumped to its highest in more than 13 years in mid-June to 11.42 percent.
As a result, lending rates of banks are seen close to 13 percent, levels last seen nearly a decade ago, while interest rates on home loans could go up by 50-100 basis points, putting off a large segment of middle-class buyers.
“Real estate prices had already started slackening, this move will lead to more slowdown,” said Ramesh Jogani, managing director at India REIT Fund Advisors, which has invested in several projects. “We see a 15-20 % fall in prices.”
Analysts say the slackening of demand is raising concern over future realizations, which is reflected in the performance of real estate stocks, with most close to their lowest level in a year and 40-60 % off their peaks.
“In the near term, we think affordability will be a bigger driver and a 20% correction in property prices will be needed by the year end to revive volumes,” UBS Investment said in a research note.