Rate hikes do­ing realty mar­ket no good

To hit buy­ers and In­vestors harder

HT Estates - - Property Classifieds - Van­dana Ram­nani

For the thirteenth time in 18 months, the Re­serve Bank of In­dia has raised repo and re­verse repo rates by 25 bps to 8.5% to ar­rest in­fla­tion, neg­a­tively im­pact­ing buyer sen­ti­ment and curb­ing in­vestor ac­tiv­ity in the res­i­den­tial real es­tate mar­ket.

The se­ries of spikes in home loan in­ter­est rates will dampen sales. Buyer sen­ti­ments on the res­i­den­tial mar­ket will re­main somber for now, and the ab­sorp­tion rate will re­main low. This is un­doubt­edly a buyer's mar­ket now, and in­vestor ac­tiv­ity will be cur­tailed, says Anuj Puri, chair­man and coun­try head, Jones Lang LaSalle In­dia.

New launches will de­cline, as will growth in cap­i­tal val­ues. In the nor­mal scheme of things, the cur­rent sce­nario will has­ten a cor­rec­tion in met­ro­pol­i­tan cities where res­i­den­tial mar­kets have slowed due to overly high prod­uct costs. How­ever, de­vel­op­ers are fac­ing a con­sid­er­able liq­uid­ity crunch due to high cost of bor­row­ing com­pounded by slow sales.

“The RBI may want to re­think its seem­ingly one-di­men­sional strat­egy to com­bat in­fla­tion. The high costs of con­struc­tion that are re­sult­ing from it are not help­ing any­one, be­cause de­vel­op­ers have lit­tle op­tion but to pass on the bulk of the ad­di­tional bur­den to buy­ers,” he adds.

So, what should new and ex­ist­ing home loan seek­ers do in such as sce­nario? Ac­cord­ing to Harsh Roongta, CEO, ap­na­paisa.com, “the in­ter­est rate peak can­not be far away and hence lock­ing into a fixed high in­ter­est rates for a du­ra­tion of 24-60 months just does not make sense. If at all you seek safety, it is ad­vis­able to go in for a dual rate loan (which charges no pre­mium over its cur­rent float­ing rate).”

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