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Don’t be exhilarated by falling home loan rates, the best time to buy your dream house is still to come

Time, money and opportunities wait for none. And thus not timing the opportunity stands for loss of money. That’s why Gurus say have patience. After all it has its own advantages, especially for those who are involved with the financial and the real estate markets. And considering the present market conditions one such opportunity seems to be present ‘round the corner’ for those who are waiting to invest in real estate.

As the demon of slowdown slowly creeps into the Indian economy and the government is trying to shrug-off all concerns with its stimulus packages. As part of a good news for aspiring real estate buyers and as a result of the combined effort from the government and the Reserve Bank of India, home loan rates have come down substantially. While the interest rates on loans up to Rs.5 lakh has been restricted up to 8%, the same for loans between Rs.8 lakh and Rs.20 lakh is fixed at 9.5%. Moreover, the above mentioned rates can be fixed for up to five years. Now, with these cheap and easily accessible loans at their disposal, its a natural tendency for many of the aspiring home buyers to jump forward to buy their dream house. But then, they should not forget the rule of timing the market. Because as of now, though we have witnessed a slight fall in real estate prices it’s still far from what is being anticipated. (Some very optimistic valuations show that the prices would go down by 40-50% across India. However, few pessimistic research firms like Macquarie Securities confirm that the price falls in most part of India would be around 25%).

Moreover, the real estate players, who are still holding onto their around 50% profit margin, are set to enter into a phase of debt repayment soon. Considering their present liquidity starved situation, the upcoming debt repayment would mean that they are bound to cut on their prices to be able to realise funds stuck in unsold and halfway through projects. And then we may see some real fall in real estate prices. Going by the logic, it’s definitely not advisable to invest in real estate at the moment, feel many experts. Indraneel Karlekar, Senior Vice President and Head of Global Research & Strategy, ING Clarion Real Estate Securities explains to 4Ps B&M, “The macro economic indicators are not yet favourable for investing in reality and the investors should wait for now.”

However, while playing the ‘wait and watch’ game one must not forget the fact that over-waiting with greed may also dampen their profitability. By the way, did you manage to time Satyam’s scrip? Well, some did. Believe it or not, they have tripled their money!

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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