Housing price may fall in Delhi, Mumbai if interest rates rise

NEW DELHI: Housing prices could fall by up to 20 per cent in Mumbai and Delhi-NCR sooner than expected if RBI raises key rates in its upcoming monetary policy review, says a report by property consultant Jones Lang LaSalle .

“An increase in lending rates is almost inevitable, considering the high need to curb inflation,” JLL India Chief Executive Officer (Business) Sanjay Dutt said.

He pointed out that any increase in policy rates by RBI would affect the sentiments of the property market and housing prices, which were expected to correct in the next 6-8 months in Delhi-NCR and Mumbai, could decline within six months.

“RBI raising its lending rates will add to the stress already building up and hasten the inevitable correction of at least 15-20 per cent in the pricing of residential properties in the overheated central areas of these cities (Delhi-NCR and Mumbai). This correction was previously expected to happen in 6-8 months,” Dutt said in a report.

It is widely expected that the apex bank would increase the key policy rates by up to 50 basis points in its upcoming monetary policy review on January 25 to curb food inflation, which is hovering around 15 per cent.

“Already there is a liquidity crunch and sales are down. Moreover, lot of developers are having exposure to expensive debts from the non-banking finance companies and high net worth individuals that they used for buying lands,” Dutt said, justifying correction in the housing prices.

The consultant feels that it makes sense for developers to reduce price to boost sales to improve their liquidity rather than taking the high-cost debt.

Dutt pointed out that housing prices in certain parts of Delhi-NCR and Mumbai have crossed even the peak level of 2008. In Delhi and Mumbai, housing prices had fallen by about 25-30 per cent after global meltdown in 2008.

While there is a high projected supply in Delhi-NCR and Mumbai, there is a distinct dearth of appropriately priced projects in the low-to-mid income segments, he added.

Prices for mid to high-end flats in Gurgaon are currently hovering at Rs 8,000-10,000 per sq ft, while in Noida it is 3,500-5,000 a sq ft.

Similarly, apartments are offered for Rs 25,000-30,000 per sq ft in Central Mumbai, while in sub-urban Mumbai the rates are little less and the range is Rs 9,000-16,000 for every sq ft.