Lowering of Real Estate Prices in the Suburbs Likely

Speculators exiting the market

By Dr Suvrokamal Dutta

Excess supply coupled with rising interest rates would lead to lowering of realty price in the suburbs. It is worth mentioning in this regard that plenty of the projects, which were launched in 2005 and 2006, are likely to be finished in the next six months in Gurgaon and Noida.

The pivotal factor here is that as interest rates have shot up to around 12 percent per annum, the holding cost of these apartments after taking the possession would be very uneconomical. Because of this, these investors would like to sell and exit from the project. On the other hand, if investor holds the project for one more year, he will have to pay an interest cost of around 12 percent.

In case if investor liquidate the investment and deposits the money in a bank, he will get a return of around 10 percent. In theory, as the appreciation in the property prices in the coming years is not in the sight, holding the property for one year, is likely to cost him around 20 percent.

In my opinion, to cut loss, such investors would like to sell the property in the market. This is likely to increase the supply of real estate in the market. It has come into the notice of The India Street that the activity levels in mid-range projects in Gurgaon, Noida and Ghaziabad have diminished. If experts are to be believed, speculators have almost exited from the market. In addition, end users are also not very interested to purchase a house at this point of time because of rise in the prices and interest rates.

Taking this into consideration, one can safely say that the increased supply in the secondary market from the projects that are getting finished will push the prices downward. “The high end market has also seen some downward pressure. NCR suburbs including corridors such as the Sector Road and Expressway in Gurgaon and Noida have been very active in the last year or so,” pointed out Kadambari Murli of Sunshine consultant.

There is no doubt in my mind that increased demand based on changing demographics, rise in disposable incomes and aspirations of the upper middle class has given a much-needed confidence to developers such as DLF and Unitech to come up with new high-end projects.