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15 per cent decline in property prices
in Punjab
It doesn't matter if the real estate bubble bursts.
It only matters if your bubble bursts
You probably thought you paid a fair price for your property when
you purchased it.
Unless you're a real estate speculator, the reason you bought the
property was to live in it or just sell it to make money
Ludhiana, June 27, 2006
Ashok Verma
There is marginal decline in the "artificially
inflated" property prices. After the crash of the sensex and
the reverse witnessed by gold, there is sign of 15% decline in prices
in Jalandhar, Phagwara, Kapurthala, Goraya, Hoshiarpur, Ludhiana
and Ropar.
The recent, rapid price increases 125% stem not from
a speculative frenzy but from basic economic factors, including
low interest rates, strong income growth, NRI investment and black
money came out in investment, "The bubble fears are over people
paying money for housing today because they're expecting unreasonable
(price increases)," said NRI professor and real estate specialist.
"Our calculation says that if people are expecting something
reasonable, house prices today are justified -- and now looks very
risky for investors."
Other markets, where those ratios hover near peak
levels, appear more vulnerable to price declines. But other economists
say the report paints a too-rosy picture of many markets where investors
are flipping homes for a quick profit and boosting prices to record
territory.
Property speculation is the hottest topic in India
These days, one question is on the tip of everyone's tongue: Is
a bubble developing in the real estate market?
Nonprofessional real estate watchers have been arguing
about the existence of a housing bubble in recent years, as homeownership
rates have soared along with prices and investors have poured tons
of money into real estate in high-flying markets. If mortgage interest
rates increase, as some economists expects within 6 months or so
- prices in these area could decline by as much as 15-30 percent
as and investors flee the market. The increased of interest-only
loans "means borrowers can't afford to make the same mortgage
payments. Strong indications prevail that the property bubble is
going to burst soon
So given all those encouraging signs, is it still
likely that the real estate market's bubble will actually burst
anytime soon? "The market's been incredibly strong," says
Narinder Seth economist
There are some reasons to slow down:
- Prices are simply too high for most investors to find any value
in the housing market.There is no question that most housing markets
are at the top of a bull market run. Most markets will not crash.
Some will correct. All will produce terrific buying opportunities
as the amateurs are flushed out of the market.
- With the average price doubling in the past one year, most owners
have concluded correctly that the cash flow on rental properties
is too low. Why take the risk and management troubles of investing
in income housing properties?
- Furthermore, renters are no longer willing to pay the extra
premium to buy when they can rent so cheaply. Why buy a home with
monthly payments of Rs 50,000 a month when they can rent for Rs
10,000 a month?
In sum, the risk-reward relationship favors selling for owners
and renting for investors. The result? Prices must come down,
rents must go up.
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