Real Estate Prices Dipping

I was reading an article on businessworld about the dipping rates of real estate. I do not think that this is the usual demand-supply cycle and the real estate market is going through a dip. Everyone is still willing to buy a house, and with increasing number of young people joning rising industries, the earning power is increasing day by day and real estate is the most secure and profitable investment. Considering just the IT industry, nearly 1,20,000 IT graduates join the workforce per year, imagine the amount of young people earning good. Within two years of joining the industry on an average everyone wants to invest in buying a house. So the demand has not ebbed a bit.

The real reason for the slip in the real-estate prices is that with RBI soaking the liquidity in market causing increase in interest rates, the affordability of purchasing a house through bank loans has reduced significantly. With the early boom in the real-estate market, the prices have already touched an all time high and they just going north. A simple two bedroom flat in prime location of Bangalore might cost you not less than 30-40 lakh in a decent locality. This is simply outrageous. But with easy loans from banks, it was still affordable. Now EMI getting more than to Rs 1000 per lakh of loan, it simply has become impossible for a service class person to go for it. Compare that to the cost of renting, a similar house can cost me around Rs 11,000 per month on rent with all the facilities(fully-furnished including pool, gym etc). So everyone who wanted to buy a house is postponing the plans and following the wait n watch policy. Here are Bangalore prices from the businessworld article (prices from 2004 to 2007):