How demand dampening factors will drive down prices
High home prices are making homebuyers defer purchases; price cuts are the only way to rope them in
High loan rates have made home acquisition costly. With gradual decline of interest rates expected, price reduction is the best bet to increase affordability
Fickle income security Prospects of job losses, pay cuts are making prospective buyers reluctant about big-ticket purchases funded by large loans.
Decline in wealth from stocks This fuelled speculative demand but is now non-existent, further dampening demand and realty prices.
Government Steps
The stimulus packages announced by the Central government recently did little to placate the woes of the developer community. While most of them had hoped for reinstatement of tax benefits under Section 80IB (10), there was nothing of that nature in the stimulus package.
The developers can, however, take comfort from the fact that prices of raw materials, such as steel and cement, that had already come down in the past weeks will cost them even less in the days to come. An across-the-board cut of 4 per cent in the ad valorem Cenvat rate will be effected for the remaining part of the current financial year on all products other than petroleum products and those where the current rate is less than 4 per cent.
The package however, did contain a lot for the mid-income as well as low-income houses. The Reserve Bank of India has announced that it will shortly put in place a refinance facility of Rs 4,000 crore (Rs 40 billion) for the National Housing Bank (NHB). Further, public sector banks will soon announce a package for borrowers of home loans in two categories: up to Rs 5 lakh (Rs 500,000) and Rs 5-20 lakh (Rs 500,000-2 million).
During the boom phase in the real estate industry, the middle-income and low-income groups did not receive much attention by the developers who preferred to concentrate on high-end housing.
With the government trying to revive demand in the middle-income and low-income groups, this section should see lot of action in the coming days. Already many developers have announced their plans to enter this segment, in a bid to revive sales, which have taken a severe beating, especially since January 2008.
Images, courtesy: Outlook Money
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