NEW DELHI: Have you heard of anyone buying a home in the last few months? Most likely not. And those you know were planning may tell you they postponed plans, especially after poor salary increments this year.
Manas Tripathi, an executive at a Delhi-based car company, for instance, changed his mind after his employer increased salaries by only 5% earlier this month. “Property prices have gone up, but my ability to service a large loan hasn’t. Interest rates are also still high,” he says.
Like Tripathi, many young first time homebuyers are pushing back plans to buy a home because of the slowdown, further making things bad for builders already grappling with low sales. Reserve Bank of India’s decision on Monday to keep interest rates unchanged has also added to the worry.
Brokers say home purchases in the mid-price range have dropped 20% and some builders are switching to high value projects where the impact is less.
“There has been a 20-25% drop in sales in the last three months. Many middle managers across industries are shying away from making such a big investment in this current market,” says Abhay Khemka of Khemka Investments & Properties in Gurgaon.
Home sales in Delhi-NCR were down 57% and in the Mumbai Metropolitan Region (MMR) by 58% in the January-March 2012 quarter, says Samir Jasuja, chief executive officer at property research and analytics firm PropEquity.
Home prices though are still on the rise, making it difficult for middle-class buyers to manage their household budgets efficiently if they decide to take a home loan.
“People take loans considering a graduating income so that they can cope with payments in the future. That hasn’t happened this year and so we could see demand for home loans come down,” says RV Verma, chairman of the National Housing Bank.
According to estimates from global HR consulting firm Mercer, average increments across sectors was expected to be close to 12% this year, barely beating inflation. In many industries that have not performed well in the last one-year, this figure hovers around mid-single digit. Earlier, in April, IT bellwether Infosys announced that it will not be giving any increments as it had failed to achieve its own guidance for growth in the January-March 2012 quarter and its projection for fiscal 2013 is also lower than it expected.
With low salary increases, loan eligibility of prospective buyers has remained stagnant while home prices have raced ahead. “Many of our clients have postponed their home purchases. But they are in a dilemma. If they do not buy a home now, they know the rate at which home prices are going up, they would be priced out of the market when they venture out next,” says Sumit Joshi, director of Noida-based brokerage firm Real Credit Consultancy.
According to real estate research firm Liasas Foras, between Q4 of 2010-11 and Q4 of 2011-12, property prices in the NCR have increased by 33% in the last one year and in MMR by 17%. Bangalore has seen a modest increase of around 8% in the period.
“Where prices have not gone up too much, like in Bangalore, healthy sales are still happening,” says Farook Mahmood, managing director of Bangalore-based property brokerage firm Silverline Realty.
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