Rate hike puts real estate in a bind
The real estate industry is caught in a pincer attack after the Reserve Bank hoisted the policy rate by 0.5 percentage point more this week. Sachin Kumar & Sachin Dave report. Crumbling facadeindia Updated: Jul 28, 2011 01:17 IST
The real estate industry is caught in a pincer attack after the Reserve Bank hoisted the policy rate by 0.5 percentage point more this week.
Consumers are expected to buy less because home loans are expensive, while builders will charge more because corporate borrowing is costlier.
“Unless the real estate prices come down the customers simply cant affordto buy their dream home,” said Vipul Patel, director, Home Loan Advisors, a Mumbai-based independent mortgage advisory company, adding that his clients are being forced to postpone their decision to invest in a home.The repo rate, the rate at which banks borrow from RBI, has been increased by 3.25 percentage points since March 2010. Tuesday’s hike was the eleventh in 16 months.
Retail home loans now come in the interest range of 10.5%-11.5% and this is expected to go up to 11-12% as banks pass on the RBI pinch to customers.
Yes Bank and ING Vysya Bank have already kicked off the process.
On the other side, banks are charging developers 14% to 16% as interest, and this can go up by up to 1 percentage point.
“The hike in the cost of funds will be passed on to the customers,” said M Narendra, chairman and managing director, Indian Overseas Bank. “Going forward, developers may see problems such as an increase in project costs and delays in project completion.”
“Developers are already stressed about getting loans for their projects and many of them are borrowing from non-banking financial companies and private lenders,” said Shobhit Agarwal, managing director, Protiviti (India), a risk-consulting firm.
“Meanwhile, the buyers, too, could be delaying their buying decision, further drying up cash flows for developers.”
Mumbai and Delhi region users are witnessing a moderate slowdown, say industry sources.