A dream new home is everybody wants or invest to make money, but perception these days that with high interest rates home loans are unaffordable. Well because of increased home loan rates there will be less number of takers of home loans now. But I think if we look at the whole picture then there should be more home loan takers than before. It is absurd to think like that in current situation but removing the curtain of subjectivity will sove this.
Now what is happening, prices of steel, cement, aluminium, iron and almost every commodity are increasing. Due to this the housing sector bears the brunt of increased input costs in developing in houses and townships. Subsequently house developers increased the prices of properties, while the demand from consumers has not subsided yet. But soon people will shy away from buying new homes as when the interst rates on home loan increases. That’s exactly what happened and there is low number of home loan takers, as now people will have to pay more through EMIs.
The boom in the real estate market in last 3 years has seen lakhs of houses being built, development of new townships ans still they are in developing phase, but people are not going for new homes now waiting for interest rates to dip a bit. So, few takers of new houses built by developers has compelled them to reduce some prices to keep selling and attracting people to buy in homes. So now when the demand is reduced, the housing market is seeing a downward trend especially in metros. Bangalore seems to be in the midst of low demand & high supply. This can be attributed to the facts that due to the sudden growth of Bangalore, in the last few years. When demand is low & supply is high prices will come down. In Mumbai developers such as Hiranandani and Kalpataru offered a discount of more than 10% on the quoted price. There is a substancial pressure on Indian residential sector because of abundance of reality projects coupled with high intrest rates and inflation. It has come to the notice of The India Street that there has been a correction of around 15% on an average in the capital market values of land across Delhi and NCR.
There is no rocket science in understanding of above stated concept based on principles of demand and supply. But how it can be god option to take home loan right now? how to eliminate the effect of increased EMIs? Well earlier people took home loans at floating rate thinking that the rate would dip but instead they increased. That was there ill luck. But now it ill be best advised to tale a floating rate of interest because interest rates are at all time high and there in slow down in the growth of economy which the country’s central bank, RBI, sees. RBI increased the CRR (Cash Reserve Ratio) and Repo rates in order to reduce the supply of money in the system through banks so that inflation can be contained which is also at all time high. But then inflation is not directly proportional not growth of the economy and RBI has to keep a fine balance so that economy grows at affordable inflation rate.
As I write this the crude oil, which is main culprit of pushing inflation up, is at 128 $/ barrel down from 145 $/barrel and it reduce soon below 120 $ mark as Saudis are increasing the output, fearing more reduction consumption because of the prices they are charging. Tension between US and Iran which was at its hit few days ago seem to be allayed down as US ageering to start a diplomatic approach instead of going for war over Iran alleged nuclear enrichment program to make nuclear weapons. And also Brazil’s major oil company Petrobras workers have decided to end their strike. All these can be seen as positive global cues and can make crude oil prices to reduce further.
Now with lower prices of crude oil comparatively will lead to the reduction petrol and diesal prices in India too, and steel prices reduce too as Government is planning to ban exports, hence inflation will relax. When inflation will manageable low, RBI at an oppurtune moment will reduce CRR. Banks will then have to park less fund with RBI and inject more funds in the circulation by reducing loan rates.
Therefore bottom line is that the home loan rates will decrease in future and this attributed other kinds of loan rates as well like car, personal etc. Hence people will have to pay low EMIs in future. But property rates are seeing a downward trend only now when demand is less. When interest rates are reduced the prices of property will jump again. So it an opputunity at this moment in time then adversary. Also from an investment point of view. Whatever the condition of the economy, one thing we should not forget is in the long term property (land) is a great investment as it is the only asset class which cannot be produced. Though there might be a 18-20% correction across in the short term ( say 6-8 months) due to the factors mentioned above ,a wait, watch and a definite buy make sense for the long term.
ICICI Bank provides not just the most competitive interest rates & best level of service, but also products designed to cater to the specific needs of consumer. ICICI bank has different interest rate scheme
1. Fixed Rate Home Loan
2. Adjustable Rate Home Loan
or combination of above two types of rates
a. Step Up Repayment Facility (SURF) for young professionals.
b. Flexible Installment Plan (FLIP) for varying tenure of income source.
c. Part Fixed, Part Floating to minimize the impact of changing in the interest rate regimes.
d. SmartFix Home Loans for 3 years lock in period to see the rates movement and then decide.
e. Money Saver Home Loan
All this with free personal accident insurance and of course tax benefits.
Interested people regarding this or for any other banking solution can contact by sending an e-mail at Spetznag5@yahoo.com
“Uncertainty is not a pleasant state of mind but certainty is absurd” – Voltaire
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