High property value and interest rates, coupled with a lower loan- to-value ratio are becoming serious obstacles for average home buyers, says researcher
An average working class person intending to buy a house will find it almost impossible today, as high interest rates and property values, coupled with low conduciveness of the loan-to-value (LTV) ratio, will make him "ineligible" for the purchase. The LTV ratio indicates how much of a property can be financed through a loan.
Pankaj Kapoor, founder and managing director, Liases Foras, a real estate research firm, says: "He (the average buyer) cannot purchase a property today as the LTV ratio is not very conducive. A consumer is most eligible for a purchase when the banks give 80% to 85% of the property value as loan, as he can manage the rest 15% to 20% from his own sources. However, if he has to pay 30% or 40% of the property value from his own pocket it turns out to be a huge burden. Besides, the property prices have also gone up, making it completely unaffordable for the average buyer."
Mr Kapoor also explained how the high property values deterred consumers from making a purchase of a property in Mumbai. He said the average cost of flats in the Greater Mumbai area of Colaba to Mulund and Borivli, is about Rs1.97 crore and if you ask an average customer to pay about 40%, or Rs80 lakh, then he has no option other than to cancel his purchase as it is unaffordable for him. "The average consumer does not have that kind of money. He may aspire to buy a property, but he will not be able to exercise this purchase today," Mr Kapoor said.
Interest rate is another roadblock that makes a home purchase difficult for a common person. Although some financial institutions offer interest rates of 8% and 8.5%, some customers find themselves ineligible for these schematic loans and move to other institutions where they are charged higher interest. "To expect 8% and 8.5% interest rate on home loans is too much. No one is offering that because the inflation rate is moving at that level," Mr Kapoor said.
A survey conducted by ICICI Securities recently has also found that property prices have become unaffordable. According to the survey in which 3,839 ICICI Direct customers participated, 72% of the respondents believed that property prices were unaffordable and 79% perceived property prices to be high. However, a significant section of the respondents indicated that while affordability was a concern, it was manageable. The survey showed that 48% of the buyers were interested in buying at the current prices or were keen to see a marginal correction. The survey was conducted during June-July this year.
The survey found a larger percentage of respondents in Mumbai and Pune who felt that home prices were too high, as compared to Hyderabad and Kolkata where a lower proportion of the respondents had a similar perception.
Despite interest rate and fuel price hikes, coupled with production constraints, Indian automakers have exhibited good sales numbers in August, which marks the start of the festive season
Indian automobile companies reported healthy sales numbers for August despite the recent hike in interest rates and fuel prices, coupled with production constraints. According to analysts, the smooth ride of automobile companies in terms of sales may remain in line with expectations until the festive season or till November. They fear increasing interest rates can hurt auto sales from the second half of the fiscal year.
Auto component manufacturer Ucal Fuel Systems Ltd said its net profit for the financial year 2010-11 zoomed 1,800% to Rs7.6 crore as compared to Rs40 lakh last fiscal.
During the FY10-11, its total revenues increased to Rs394.6 crore, a rise of 30%, from Rs303.4 crore, said the Chennai-based company in a regulatory filing.
The company's board of directors has recommended a dividend of 10%.
On Thursday, Ucal Fuel Systems shares declined 0.2% to Rs90 on Bombay Stock Exchange, while the benchmark Sensex closed 0.2% up at 18,238 points.