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| Retail loan rates come a full circle | | MONETARY POLICY REVIEW/ YOUR MONEY |
| Joydeep Ghosh / Mumbai Jul 30, 2008, 04:50 IST |
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1998: HDFC’s fixed home loan (the concept of floating rate was introduced in 1999) rates were 13-17 per cent for houses costing less than Rs 10 lakh. Above that, the rates were over 18 per cent. ICICI, India’s largest private sector bank, started its retail home loan operations in 1999.
2008: Fixed home loan rates are 14 per cent and inching upwards.
Stock market investors and potential home buyers may not remember the years 1998 and 2008 too fondly.
In the mid-1990s, the housing industry was going through a bull phase. Home prices changed with builders’ whims. For instance, the rates quoted by builders would change by the time the loan was sanctioned. The situation was quite similar just a year-and a-half back when buyers found rates changing on a day-to-day or sometimes, even hourly, basis.
Post 1995 and till 1998-99, the property prices continued falling and by as much as 30-50 per cent in some places. Many property consultants felt the correction phase, which started six months back, may accentuate. More importantly, potential buyers have started delaying their decisions.
Akshaya Kumar, chief executive officer, Park Lane Property Advisors, said, “In 1998, despite a demand for property, the prices had run away to unaffordable levels first and then fell too sharply, forcing potential buyers to postpone their decision to buy. Even now, buyers are waiting for some triggers.”
Not just the property market, but also the stock market investors were having it real bad. The Sensex In July 1998 was at 3,200 points, down from 4,100 points, in April - a sharp fall of almost 25 per cent. Since January 2008 too, the stocks markets have slipped by over 30 per cent.
Investors in direct stocks and mutual funds are finding themselves unable to find an exit route because of this continuous fall.
Of course, some things have definitely changed. For instance, the per capita income has risen from Rs 9,244 to Rs 24, 321. Property prices have risen by 300 per cent during this time. “Prices in the Bandra-Khar region were at Rs 5,000-7,000 per square feet; now they are at Rs 15,000 - Rs 20,000,” added Kumar. Certain other pockets have seen prices rising even faster.
However, the most important difference between the two years was that in 1998, we were almost at the end of the price correction cycle. Even the Sensex rallied in 1999 to 5,000 points. This time, however, we could just be entering the cycle.
And for investors, this is bad news. But for those looking to buy property, the coming months could provide some solace in terms of a price correction. The higher interest rates could be a dampener, though.
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