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Buying a house it somewhat like a gamble. Should you buy before prices start to
rise or should you wait a little longer to see if the prices will drop
even further. Hence knowing the market scenario is important to make a
decision.

Recent scenario
Real estate market is seeing action once again in certain pockets. The damage done by the economic slump on princes has almost been undone in several pockets of
Mumbai, Bangalore and NCR. The real estate industry is picking up, but
slowly and unevenly. While NCR has seen the highest number of project
bookings in the middle and high income market. Mumbai witnessed
slowdown in volumes after sharp price appreciation. Some real estate
companies reported good absorption in volumes in Bangalore revival in
IT industry and salary hike for most employees.

With improvement in demand, real estate prices in the country have also started moving up. The prices of both commercial and residential properties have gone
up significantly and they are close to their peaks. In Mumbai, the
prices are back to the older highs of 2007-08.

For property buyers is this the time to buy a dream home?

In our opinion we feel yes, because:

RBI's move to control inflation: Recently in order to control inflation and anchor inflationary expectations, RBI raised the repo rate by 25bps to 5% and reverse repo
rate by 25bps to 3.5% Further, RBI also indicated there could be
further rises in the days to come. Mr. Subbarao mentioned that the
central bank would continue its movement towards exiting its
accommodative policy, implying further rises in indicative rates.

While the hike in key policy rates announced by the Reserve Bank of India is unlikely to have an immediate impact on demand for homes, real estate
major, the management of DLF feels any further increase in interest
rates by the Reserve Bank in the forthcoming annual monetary policy
review could put upward pressure on prices. The higher interest rate
regime will soon be a reality, thus bringing an end to the honeymoon
period for the home loan buyers.

Teaser loans: Teaser rates were introduced by banks last year to boost demand for housing finance in a slowing economy. State Bank of India (SBI)
launched in January 2009, teaser loans where the home loans were on
offer at interest rates between 8.5% and 11% depending on the amount
and the tenor.

While the teaser loans did aid the buyers, with interest rates bound to go up; teaser loans could then become uneconomical for banks. If interest rates rise too much, EMIs will
climb, squeezing borrowers further. Also following the RBI's warnings,
most banks have already changed course with almost all of them ending
their teaser loan programs, with the exception of SBI bank, which has
also extended it only for a month more.

Budget measures: The rate hike comes as a second blow to individuals who were waiting to buy a house post the budget. As we are aware that most of the measures
announced in the budget were not in favour of real estate developers.
Buying a house is expected to get expensive as the developers may pass
on the higher burden to the buyers.

Industry sources predict that the property prices are expected to go up 12% from its present levels by the end of this year due to the rising costs of inputs like cement
and steel. The cement prices have risen by Rs 20 per bag; steel prices
have also increased by around Rs 1,000 per tonne in recent times on the
back of excise duty hike on the commodity.

To add to this the budget announcement on service tax would play a detrimental factor. This is likely to be imposed from June (Mumbai is likely to see
additional 1% VAT).The home buyers will now be required to pay a 10%
service tax on 33% of their EMI amount for an under-construction
apartment. This will increase the prices by 3.5%. Also there is a 10%
service tax on the full amount paid towards preferential location (PLC)
which has been classified as a service in this budget

Thus considering all these factors, we think that it would be a good time to buy a house. As we know, we can never time the markets. Only relatively
we know whether a market was at the bottom or not. Further, we can
never be aware of the bottom while one is in it. Price is not so
critical for a long term view (minimum 5 years) and specially if it is
for self occupation. With tax benefits, in may not be a bad decision to
buy your dream home if your financial affairs are in order.source from BankBazaar.com

By BankBazaar.com - an online marketplace for your personal loan and home loan needs.