Real Estate Scenario>>> 2011
The year 2011 has been annus horribulus for the residential real estate markets in Mumbai and to some extent Delhi. Prices climbed back up (and even beyond in most cases) after the drop in 2009 and volumes fell sharply. Interest rates on home loans shot through the roof on the back of 13 rate increases by RBI and demand fell significantly. Perversely the builders raised prices despite the shrinking volumes and so the volumes shrunk even further.
If one wants to know the difference in the impact of rise in property prices and the rise in home loan interest rates one has to look beyond Mumbai (and Delhi). Chennai, Hyderabad and a host of other cities continue to show good demand despite the same interest rate hike showing that if property prices are reasonable there is a lot of demand even in the current interest rate scenario. Clearly Mumbai is becoming unaffordable to stay in.
The year 2011 also witnessed arrival of dual rate loans but they did not become popular like their earlier avatar of teaser rates of 2009-10. These were not able to make desired impact as this scheme does not offer any concessional rates at all as compared to a regular floating rate loan. In fact most options if the customer opts for a fixed rate period of 2 years or more he has to pay a premium over the applicable floating rate. This is therefore much more akin to the “fixed rate” loans being offered by a limited number of PSU banks where too the loan reverts to the regular floating rate loan after the “fixed rate” period is over. Secondly the rates for these schemes are equal to higher than the prevailing floating interest rates ( which can also be negotiated by good customers). Unless a similar negotiation possibility exists for those who opt for these dual rate loans, these become less attractive.
Thirdly the premium for the tenure of “fixed rates” does not make too much sense since interest rates are not expected to rise much more than the premium that you are required to pay over the applicable floating rate.
Coming to prepayment penalty waiver, it is not clear if the recent RBI position that pre-payment charges cannot be charged for a floating rate loan will be applicable to these part fixed and part floating rate loans.
Another trend which needs a mention here is ‘Festive Season’ offers where banks reduced rates to woo customers These so called festive season loan offers are essentially reduction in already higher rates (except State Bank of India which brought its rates with the competition). Moreover these festive offers are not the only way to get reduction in rates. Private lenders are anyway negotiating home loan rates for their new customers.
Coming to the Interest rates they may still go up by another 0.25% or so but are likely to stabilize for a while thereafter. If property prices stay stable (and perhaps drop in markets like Mumbai) we are likely to see a resurgence of demand soon. It is a great time to buy your own home. Search for your dream home (but stick to ready possession properties – it is not worth taking a risk on under construction properties in this uncertain market) and make a really low offer to the seller ( builder or the re-seller). Remember fashion street – make an offer just like that. Unlike fashion street your offer is unlikely to be accepted immediately but if you have done enough to make the seller feel that you are a serious buyer you will get a much better offer which may be nearer to your “really low offer”.
All in all 2011 is turning out to be mixed year for home loan customers where lenders made some efforts to woo customers.