Real estate and property market in 2009

What will the new year bring in for the housing sector? How will the housing sector scenario be in the year 2009 - will it continue the way as in the past or be different? Without using Tarot cards, we can try to find some answers. By no means, are these predictions for the year. At the most, these may be categorised as wish lists of the participants of the housing sector. Of course, one needs to factor in the developments in the housing sector over the last few months to make any judgement calls.

As is well evident, the era of soft interest regime is over. Although, the housing loan interest rates had fallen down considerably over the years - from 16-17 percent to 7-10 percent, the upward trend had started last year. 2008 saw a hardening of interest rates and RBI itself increased its repo rates. There have been increases in the interest rates by banks and housing finance companies (HFCs), both in fixed and floating rate loans.

As such, with increased inflation, the lending rates on loans also tend to increase. Inflation is affected mainly by crude oil prices and monsoons. Also, as the industrial sector picks up momentum, it may act as a competitor to the housing sector for demand for funds from the banking sector. At the same time, it is to be noted that banks are flush with funds, which means excess liquidity. This may dampen any move of banks to seek a big hike in the interest rates for housing loans.

Under the Income Tax Act, exemptions are available for interest payments for housing loans as well as for repayment of housing loans. In order to obviate undervaluation of property by the purchasers and to increase the revenues of the government, the stamp duty rates on registration and transfer of property may be reduced. And many state governments have recommended this.

Infrastructure development should definitely need to be on top priority on the government agenda. The focus of the government needs to be shifted to development of the infrastructure sector.

A lopsided development of housing sector, divorced from development of infrastructure, would be counterproductive for the housing sector itself. By virtue of its links with other sectors, housing as an industry has tremendous growth potential for other related industries - steel, cement, furniture, consumer goods and durables, as well as the services sector including architects, property consultants, interior designers, banks, housing finance companies and insurance companies.