Encashing dream in crashing property market

Says Akshay Kumar, chief executive officer of Colliers Jardine, a multinational real estate consultancy firm: “The real estate market across the country is nearing the bottom. But budget flats are showing signs of revival in the suburbs with buyers being attracted by the low rates. The increase in demand for budget housing and in leasingactivity in most cities indicates growing user interest as prices have corrected.”

Corroborating this, housing finance companies say small flat buyers are making the best of the crash thanks to the availability of cheap housing loan schemes. People are increasingly taking loans for houses costing below Rs 5 lakh as interest rates have dipped to a new low and disposable income goes up. Says an official with General Insurance Corporation Housing Finance: “The real estate crash has not affected the budget flats segment because in the last three years, income levels have almost doubled and tax incentives on loans have increased. Income-tax rates have also changed which has encouraged more actual buyers to go for apartments.”

However, the downside for builders in Mumbai is that buying activity is concentrated mainly at Mira Road in the western suburbs and the Thane-Kalyan belt in the central suburbs. “In Thane, flats are available for as little as Rs 850 per sq ft while in Mira Road and Kalyan, prices aredown to Rs 650,” says an HDFC official, adding that buyers who prefer to fence-sit are now taking loans and acquiring properties in these areas. In Mumbai, prices beyond Andheri are in the Rs 1,350-1,400 per sq ft bracket, depending on the location, the official adds.

Moreover, as most deals are being struck for resale flats, there are no takers for new apartments thus further pushing down prices. “We are getting only inquiries for new flats. Very few of these are converted into sales,” says a Mumbai-based builder.

Housing finance officials predict that interest rates on housing finance will decline further in the coming months as a major policy initiative is expected in the forthcoming budget. Housing finance could be made more affordable by increasing the ceiling of interest component that can be absorbed from the consumer’s income, they say. Adds Kumar: “We are expecting the Union Budget to be housing industry friendly which would help the market revive.”

The the last budget imposed a Rs 30,000cap on the interest component on a loan of Rs 2 lakh which is absorbed through the salary. This ceiling, HDFC officials say, could be increased to Rs 75,000, which is the interest accrued on a loan of Rs 5 lakh.