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2010 was a mixed bag
Source : The Hindu Published On : 2011-01-10 City : Chennai

Every New Year brings with it hopes and expectations. And 2011 is no exception.

But before we embark on forecasting new trends, it's time to evaluate 2010. It started on a positive note, in the sense that the U.S. economy showed some signs of growth and the latest figures indicate that a growth of 2.5 per cent has been achieved. Though the U.S. real estate sector still remains dull, the growth graph has finally started moving upwards.

On the home front, the year has been a mixture of ups and downs in the field of real estate.

In tune with the upward trend in the IT field, demand for both residential and commercial space has looked up. Developers and promoters were quite active during 2010.

The residential sub-segment grew, though only in the affordable housing segment.

This was evident from the number of realty expos organised in major cities and towns including the metros. Bankers were also very active despite the caution from the Reserve Bank of India.

The year opened with some hope of decelerating interest on home loans, but ended with rates increasing by 1 to 1.5 per cent.

The teaser rate has also been criticized by the RBI. The main reason for the interest rise has been the need for containing inflation which rose unabatedly during the year.

Teaser rates

The year end saw a tough stand by the RBI on the ‘teaser' rates and increasing the provisioning norms for all loans given at concessional rates for the initial year/s of the loan.

The RBI also directed that the LTV (loan to value) ratio, which has no regulatory ceiling now, should not exceed 90 per cent for loans up to Rs. 20 lakh.

RBI's notification with regard to teaser rates expressed concern over the repaying ability of borrowers when the normal rates are applied, and upped the provisioning rate to two per cent in the initial year.

There was a general rise in property prices in prime areas by 15-20 per cent. Rentals went up by around 10-15 per cent.

New constructions in peripheral areas and tier-III cities were low, especially in the affordable segment. Some reports say that the floor area has been ‘managed' to retain the cost within the grasp of the lower middle class.

Meanwhile, there has been a tendency to provide up-market rates to the elite in the form of villas, apartments etc.

Prospects for 2011

The U.S realty may sustain its growth; interest rates may harden initially but are likely to soften after the Union Budget; banks may tighten large real estate loans; teaser rate may be a thing of the past in metros where the CBDs will have metro rail/monorail service, high-rise buildings will flourish; infrastructure investments will be substantial, to aid the realty sector; more regulatory measures to rein in scams / irregular practices will be in place; housing societies promoted by elite groups will be subjected to strict scrutiny; environmental compliance will be insisted upon strictly, more so for township development; and there will be a general correction in the real estate sector which will lead to healthy growth

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