Published & Updated as on - 2010-02-17

Home prices may remain firm or inch up slightly in metros such as Delhi and Mumbai and their suburbs despite an expected rise in interest rates as demand picks up once again on the back of renewed activity on the employment front, bankers and realty players that ET spoke to said.

However, they felt that prices at extended suburbs — such as Greater Noida and Manesar near Delhi and Navi Mumbai, along with tier-II and tier-III townships — will remain under pressure due to oversupply of housing, lack of connectivity and paucity of jobs in such locations.

The residential demand is not just the function of the interest rate, said Keki Mistry, vice-chairman and managing director of HDFC, the largest home-loan player in the country. “The demand is primarily driven by job creation and job confidence. When any individual buys a home, he or she enters into a long-term payment obligation. Therefore, buyers need to have confidence of retaining their jobs,” he said.

The late-2008 and early-2009 realty crash was largely thanks to the fear of impending job loss in light of the financial slowdown, Mr Mistry said. “Given the robust industrial growth rate, it is apparent that jobs will be created and there would not be any scepticism on protecting jobs. This in turn would continue to fuel demand for homes,” he said.

Niranjan Hiranandani, a leading Mumbai-based developer, said demand for residential segment is likely to increase by a compounded annual growth rate of 30% over the next five years. His caveat was that in between this period, there could be a marginal slowdown in demand. “But in the long-term, growth story is intact,” he said.

“Prices in metros, which primarily constitute the premium segment, continue to strengthen further as there is hardly any fresh supply such as in Delhi or very limited supply like in Mumbai,” said Amit Bhagat, managing partners in ASK Private Equity Fund.

“In suburbs and extended suburbs, the prices are more a function of location, supply and job creation. The current trend indicates that prices will remain firm or even rise marginally,” said Mr Bhagat. “However, in tier-II and tier-III cities, besides extended suburbs such as Greater Noida and Manesar, there will be pressure on pricing,” he added.

“Prices have already started firming up for the past couple of months,” said Rajiv Talwar, executive director DLF, the largest developer in the country. “However, the prices are yet to reach the peak level of 2007. The current prices are 10-20% from the lower end of 2008 or early 2009. Given the supply, particularly in the mass market, it is unlikely that prices will come to the 2007 level,” he added.

Real estate was one of the worst-affected sectors in the global downturn as buyers kept away from the market and banks became skittish about lending. However, last year banks introduced teaser home loans to boost demand for housing in a slowing economy. They started offering home loans at very low interest, some even as low as 8.25%, much below their prime lending rate (PLR).