Dream or reality

People need home and for this need they need to pay penalty, with recent hike in Benchmark rates, housing loan are set to get more costly. The rate hike will definitely impact the housing sector reducing the demand of loan and eroding bottom line of builders due to reduced margin. Prospective buyers are now in dilemma as to buy now or wait for a correction in prices

With banks already increasing there lending rate the EMI’s are certainly going to step up and this will dilute the interest of many prospective buyers, but whether this will bring a correction in property prices or not, that is not very evident.

The reason of property prices not cooling down is because with the developers cost incurred in terms of labor, raw material and borrowing have gone up and they can’t reduce the cost below certain point. Cost of funds for developers is already very high, ranging up to 16%, depending on the credibility of the borrower, and banks have not been willing to lend to the real estate sector in the recent past. Apart from all these factors in mid term the property prices will go up.

There might be some correction in metro cities and that too for high end residential and commercial units, but in non-metro cities correction seems to be not in horizon, as the prices are still affordable and there is always a buying interest and the current credit policy will not discourage the first time buyers. Only Buyers with investment perspective will hold on there purchases but the real buyer will not deter the jacked up EMI’s.

This is also high time for housing finance companies to segment the home buyers i.e. buyers for affordable housing and buyers for luxurious housing and frame the policies accordingly. For an upper segment buyer the loan contribution is merely 20% of the entire cost whereas for the affordable housing segment the contribution ranges between 80-100% and with every rise in financing rates the buyer of affordable housing feels the heat.

I’m sure that the decision maker will understand the dynamics of the home finance and will create diffentiation among the class of buyers. I also feel that Home finance institution should absorb the increase cost of finance and should not download it to the customer as the housing loan being one of the most secured loans and with India seen on growth trajectory there seems to be no reasons for doing this right away.

Image source: 123rf.com

Why food inflation!!

This being a vicious circle, difficult to find the start and end but as far as I think, IT Sector was the instrumental in rewriting the growth story of India Inc. It all started in late 80 with the growth saga of Information Technology sector; this sector started attracting the talent from the core industries, high profit margin/cash rich IT companies could leverage double, quadruple salary expectations for the experienced recruits. There were never like before demand of engineering graduates all across the country and existing machinery of colleges were not sufficient to meet the industry demand.

To meet the demand of engineering graduates, education sector started to grow as an industry in it and in the past decades ample number of engineering colleges mushroomed across the country. Now this industry is producing engineering graduates more than what they are required globally; this is my assumption.

High salary packages of IT industry apparently pressurized other sector to revise their base packages and to preserve brain drain, manufacturing and service sector followed the suite and offered good package and perquisites to their employees. The salary of the Entire private sector companies got revived and IT sector was an instrumental and trend setter for revival of the salaries for the entire India Inc. High salaries increased the leverages in terms of disposable income and people started spending on their wants.

Young graduates getting hefty packages started spending lavishly; there was spurt in demand for luxurious commodities, housing, food and clothing. As they were spending heavily and buying something or other, the related industries which were the net producers went for a head spin profits and thus the entire value chain started making money, money got mobilizing and started exchanging hands and in turn everyone getting a pie of the transaction.

Money and trend started mobilizing towards other cities and now this euphoria is all over the country; you find people with ample disposable income and lavish expenditure. Increased disposable income also pushed the demand of investment, the handful avenues everyone short listed being gold, housing and equity and the money started flowing. The soaring profits of these sector pulled many investor and money in turn; henceforth more money started flowing in the system.

Of all the favorite investment avenues, the Only demand which I believe will be hampering in long turn will be the bizarre demand of Housing, as equity and gold is something virtual and not much to do with a common man, but housing demand is something which is a basic need and “not a want” and unprecedented demand of housing will further push the prices of all commodities in the entire value chain.

To meet the unprecedented demand of housing sector agricultural land is getting sacrificed, agricultural land is rapidly winding up, though there are norms for not using agricultural land for housing purposes but hardly does it comply. In the past I have seen catchments of land which were used for agricultural purposes, lying vacant for few years and then emerging as residential colonies.

India is rapidly growing in population and so is the demand for housing, but if we keep on losing agricultural land in lieu of residential projects than the expected agricultural output will never be able to meet the demand of growing population and the commodities prices will be always inflated.

Now whom should we blame for the any of the inflation? Is it High Industry packages, aspirations or desire to fulfill the wants?

Images source : smartgrowth.bc.ca

Proper T

I was fortunate enough to get a chance to stay in some of the happening cities of India and as I’m having keen interest in Home & land (the real estate segment) I have observed and tracked the real estate market of all those cities growing leaps and bounds.

I’ve fascination towards Real estate right from my childhood might be because we stayed in rented accommodations and government quarters till my father got retired and it was only after his retirement we purchased our own house. I always dreamed of owning a house (big enough) with a small garden and facing a big water body. Though a big water body is a dream come true in the cities I have lived in because of scarcity of water itself but still I dreamed of having a small water body (swimming pool) in my house if I’m not able to place my house is front of a big water body.

With a picture of dream house and willingness to compromise on amenities (which I feel are must for a house to be called as dream house) I started hunt for my own house. To my utter surprise I found that that the city I have been living in from so many years has grown beyond my imaginations, areas which were have a deserted look in day light now boast on swanky malls and excellent infrastructure, areas which use to be very cheap and people were reluctant to invest in those areas are charging a premium today and that too multifold.

The city has grown leaps and bounds and rapidly expanding its limits but no cheaper housing available no matter how far you are from the main city, all one can see is luxurious apartments and bungalows; construction and only construction is at sight. This made me to think; what’s that encourages builder to create luxurious housing, why there are so many sellers in the market, why there is huge demand, how people are managing to put money in the luxurious projects and if the common man is not buying then who are those peoples who are investing.

Though I haven’t got any concrete answers to my question but one thing I’m sure is that there is not enough of buying appetite in the market and price tag for the properties are highly inflated. The price which is demanded is based on an previous transaction occurred in the city/ locality/ building which becomes the benchmark for the future transaction. An apartment in a residential building sold for an unbelievable price ensures that the future deal of any apartment in the same building or in areas nearby will fetch a price higher than the previous deal. Such deal attracts more number of buyers to invest in the happening places, willing to pay a premium for the transaction and in term inflating the property prices.

These seems to be a never ending herd race; people who are richer gets more richer and common man remains a loser in the rat race; no matter he wins the race but he still remains a rat and stays on rent for his life.

Image source: psdgraphics.com