India property price will fall, but no drop in home loans rates
Posted April 27, 2007 
Comments(0) If you are planning to book any flats in any of the metros in India, better to wait for a few more months. Sometime in the course of this year you’ll see a 30 to 40 percent drop in prices. The price of a 100-square-metre Bangalore flat has jumped 60 percent in two years to $100,000. Prime residential prices in Mumbai and New Delhi have doubled in that time to about 20 percent lower than Shanghai and 40 percent below Singapore and Hong Kong.
US tycoon Samuel Zell told a gathering of Indian property executives this week it was “mental masturbation” to believe there were endless riches for investors in India’s runaway housing market. For the developers and fund managers who were listening, however, the only question remaining was how far property prices will fall. The last time a property bubble burst in India - between 1995 and 2001 - prices slumped by up to 70 per cent. This time, a fall of 30 to 40 per cent is on the cards.
The interest rates on home loans have increased by over 2 per cent during the last six months. The increase in the cash reserve ratio and repeated hikes in the short-term borrowing rates has forced the banks to increase the lending rates. Private sector banking major ICICI Bank had increased its home loan rates by one percentage point to 14 per cent for fixed rate loans and to 12 per cent for floating rate loans.
There is good news for home loan borrowers. RBI’s stance to reduce risk weightage for housing loans up to Rs 20 lakh to 50 per cent could lead to softening of rates by as much as 0.5 per cent. But you won’t find any flats in metros like Bangalore, Mumbai, Delhi etc for 20 lakh. Hence better to wait and let the ice melt.
