Falling prices & interest cuts lure NRIs to Indian Property Market

Falling prices & interest cuts lure NRIs to Indian Property Market

Unlike Dubai, the UK and the US where the property bubble has clearly burst, Indian property segment seems to have weathered the global liquidity crunch relatively well. India has not witnessed a market collapse owing to adequate checks on the monetary policies of its banks and other home financiers. Of course, demand for Indian properties has weakened, especially as outsourcing and IT industries have been hard hit by the global financial meltdown. Since the exposure and demand for Indian property is primarily domestic, the market has started to feel the pinch as hundreds of firms across the country lay off workers due to canceled orders and higher transaction costs.

  Impact of Global Financial Crisis on Asia, Europe & Latin America 

  (Source: International Monetary Fund)

As a result, prices have declined all across the property spectrum, making this an opportune time to invest in Indian realty. According to a recent report by Business Standard, realty prices in key Indian cities have eased by 30-40 per cent. For NRI investors on the lookout for quality housing from reputed builders, this is a perfect opportunity to secure the best deal. For instance, you could actually persuade the builder to waive off the floor rise, get free parking and other amenities at no extra cost.

The question is whether the prices would fall any further. Most investors seem to be waiting for the lowest entry point into the market. However, this is not advisable as it is very difficult to predict upswings and downturns for a market as vast as that of India's.

If you are too cautious and wait too long, "the point of optimum entry may pass and the best opportunities may be lost." We expect a revival well within the next 12 months as population soars and banks slash interest rates for home loans. Since the equity component in housing is higher in India than in the West, there will be no a market free-fall. 

In the last two months, things have changed quite dramatically for NRI investors. India's lending sector when compared with that of the UAE has become more competitive with the State Bank of India freezing interest rates at 8 per cent for one year for new home loans. This can be availed up to April 30, 2009. Earlier, State Bank of India's (SBI's) rates ranged between 8.5 per cent and 11 per cent, depending on the loan amounts and profile of the customer. 

Other public sector banks (PSBs) are already offering special rates under a scheme announced in December. The interest rate on home loans up to Rs 5 lakh is fixed at 8.5 per cent and for those between Rs 5 lakh and Rs 20 lakh at 9.25 per cent, along with free insurance. The biggest home loan provider in India, HDFC has started giving discounts since mid-January. Under this special scheme, floating rate home loans up to Rs 30 lakh are at 9.75 per cent and loans above Rs 30 lakh at 10.75 per cent. The eligibility criterion has also been tightened. Many banks would reject the loan application if you have an existing personal loan or credit card defaults. If you have delayed repayment of an ongoing loan, there are chances your loan will not be sanctioned. Such moves should safeguard the segment against defaulters and malefactors.

According to Business Standard, prices in many areas have dropped to their late 2005 or early 2006 levels. These include, Gurgaon and Noida in Delhi, Whitefield in Bangalore and distant suburbs of Mumbai such as Kandivali, Malad, Thane and Navi Mumbai. DLF plans to reduce 15 per cent prices across markets. They also said that their affordable residential housing will be launched at a rate of Rs 2,000-2,500 a sq foot. Unitech, the country's second largest real estate player, too plans discount in Kolkata and Delhi NCR. Mumbai-based Orbit Corporation has also announced 20 per cent discount in premium projects such as Orbit Grande and Orbit Eternia as it sees a correction of 20-30 per cent in South and Central Mumbai.

Today, India's property sector is undergoing far-reaching changes. Developers have realized that indiscriminate growth and expansion are no longer feasible. Instead, they are embracing more rational and pragmatic strategies, which in turn will result in prices being corrected to realistic figures. We expect the market to stabilize by Q3 of 2009 as the effects of price corrections and flexible payment options become evident.

(Details of percentage of Indian families owning houses compiled by Gowealthy Research Team)