With interest rates rising, the prices of houses for the middle-income group (in the Rs 50 lakh range) could come down by 20 per cent to 30 per cent, especially in smaller cities, experts say.
"With home loans becoming more expensive, the developers may not be able to liquidate their assets in Tier-II and Tier-III markets and will have no choice but to reduce prices. There could be a price correction of 20 per cent to 30 per cent," said Pritam Chivukula, national director, Colliers International, a property services company. Oversupply may add to the downward pressure.
According to a study by AC Nielsen last December, the supply of houses costing Rs 25 lakh and above, constructed during 2004-06, had exceeded demand by 16,764 units in the National Capital Region, Ludhiana, Chandigarh, Panipat, Sonepat and Jaipur.
The developers have already started feeling the pinch. Kolkata-based PS Group had launched 800 apartments priced between Rs 5.5 lakh and Rs 50 lakh three months ago.
"With interest rates going up, the monthly installments will increase. Due to a slowdown, the developers may shrink plans," said Pradeep Chopra, director, PS Group.
"Buyers of premium and luxury houses will not feel the pinch as they do not rely so much on home loans. Market reports suggest a substantial dip in the number of transactions for middle-income housed," said a senior executive with one of India's largest non-listed realty company.