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Rising interest rates hit home sales hard

Raghavendra Kamath  |  Mumbai 

Property developers, have seen a 40 per cent decline in enquiries from home buyers over the last three months.

With home-buyers postponing their purchases owing to higher interest rates and increase in equated monthly installments, the slowdown in the market is getting deeper.

  • Property developers, see enquiries from home buyers have gone down by 40% over the last three months
  • Investors say that while developers are not advertising price cuts, most of them are ready to reduce prices once negotiations start
  • However, some are expecting prices to revive during the Diwali season

The Mumbai-based Oberoi Constructions, which used to sell around 50-60 apartments in the June-July period, a traditionally lean period for property sales, has seen a sharp fall in sales during the same period this year.

Neelkanth Group, another Mumbai-based developer that builds homes in the central Mumbai suburbs, has also seen its sales dropping by over a third in the same period.

Property consultancy Knight Frank’s chairman believes the situation is getting worse. “This is just the tip of an iceberg. The worse is yet to come,’’ he said.

The 30 per cent year-on-year sales fall in June and July follows the 20 per cent decline in the previous six months. And no one sees any silver lining on the horizon.

The Reserve Bank of India has raised the repo rate, the rate at which it lends to banks, by 125 basis points. Commercial banks have in turn raised their consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 on a 14.25 per cent interest rate from Rs 8,060 (7.5 per cent interest rate) five years ago.

“Home buyers are adopting a wait-and-watch approach. While ready apartments are being sold, those under construction are not finding enough buyers,’’ said Vikas Oberoi, managing director,

A cross section of property developers, said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year.

While developers are not advertising any price cuts, most are willing to reduce the prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per square feet, developers are settling deals at Rs 5,500-Rs 5,400/sqft due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.

Property brokers point out that some pockets in Mumbai such as Andheri and Santacruz have seen the prices soften a bit in the last few months. In Andheri, for instance, prices declined to Rs 9,000 per sqft from Rs 10,000/sqft six months ago.

First Published: Fri, August 08 2008. 00:00 IST