The outlook for property prices, particularly in major metropolitan areas, appears to be one of stability; any significant decreases are unlikely in the near or distant future. Are we expecting a price correction sooner than anticipated?
In India, especially within bustling cities like Bangalore, Delhi, and Mumbai, predictions indicate that property prices are unlikely to decline. While many people hope for a drop in these prices, it seems next to impossible to foresee this occurring in either the immediate future or the longer term.
Developers have secured loans from various banks and housing finance organizations. Some have even obtained financing from private equity firms that typically charge interest rates between 25% and 30%. Despite facing dwindling demand for many projects, some builders still find themselves compelled to reduce prices, influenced by buyer sentiments that have taken a hit from the soaring property values.
Yet, it appears that those who resist rate reductions are the banks and housing finance entities that have extended loans to both builders and purchasers. There have been instances where lenders provided buyers with loans that exceeded 100%, namely due to the Reserve Bank of India's stipulation limiting loans to 80% of the total property value.
Prior to the RBI placing this limit a few years back, many builders granted full financing—or more—covering expenses like Stamp Duty Charges and registration fees on behalf of buyers. Reports such as the July 2012 analysis by Knight Frank indicate that over 80,000 housing units in Mumbai alone have been left devoid of demand, with each unit averaging a value of around Rs. 1.2 Crore. Additionally, another 50,000 to 100,000 units remain vacant and not on the market, showcasing the absence of buyers for these properties.
Should a price correction take place, it is likely that investors would be the first to withdraw from the market. If such a correction occurs, those possessing second-hand or even third-hand properties may decide against selling. In all scenarios, both builders and financiers would feel the impact, with builders facing the brunt of the consequences due to their extensive holdings of non-income generating properties. Ultimately, the prospect of a price correction occurring in the near future seems bleak.