Wednesday, January 10, 2007

Will the Real Estate Correction Start soon?

Good News,

Despite rising income levels, bankers said rising property prices have had an impact on home loan growth rates. Property prices have increased by about 50% to 60% in the last one year, though in some pockets the rise was as much as 100% to 150%.

"We could see a correction of around 20% to 30% in real estate prices in 2007," said analysts. HDFC chairman Deepak Parekh had said property prices could see a 15% to 20% correction. However, builders and developers do not seem to buy this argument.

"Growth in home loans has been slowing this year. This is largely on account of rising property prices and higher base," said Rajiv Sabharwal, senior general manager, ICICI Bank. The home loan portfolio, which has registered a growth rate of about 30% year-on-year, has dipped to 25% this fiscal.[source]"

Which means fewer people are buying homes, though the construction never stops, and of course land acquisition. The reason could be the rise in home loan rates, combined with the irrational rise in property prices. Genuine buyers won't be hurt, though they might feel some dissonance. Real estate companies won't be hurt either. Most of them have raised good money from the market at the right time. And anyway, they can now grow upwards. As the developers add more and more floors upwards, it will beneficial for all. But if there be speculators who have leveraged to invest in the property boom directly, and have entered in the last one year, they migth be hurt, and I have no pity for them.

Times of India, delhi also reported a news about yesterday's DDA auction which went for a lower than expected price ( It doesn't mean though that it went below the reserve price, but it was below the market price). Another Signal??

This good for Home buyers who have been waiting for a correction. The same article above also mentions a correction of about 15-20%, which is not new though. I see more correction than just 15-20%.

I won't exit the housing stocks just now though. But soon enough. Time to switch to Sugar.. Damn cheap I tell you.

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