New Delhi: Realty space is in for some pruning of its skyrocketing growth momentum as an imminent rise in interest rates will make both construction and purchase of properties costlier.
The commercial lending institutions are gearing up for an interest rate hike of up to one per cent on housing loans as well as for the industry, following RBI’s latest decision to hike the mandatory cash reserve of banks and its short-term lending rate to them by 0.5% each.
Experts said the realty sector, already facing a slowdown, might see further decline in demand with all major banks indicating hardening of the interest rates.
While some realty firms, including market leader DLF see consumers shifting focus to relatively smaller-size homes in an increased borrowing cost scenario, others believe that it could be a double-whammy for the sector as a vast majority of both developers and buyers depend considerably on borrowings.
Global realty consultant Jones Lang LaSalle Meghraj chairman and country head Anuj Puri said home mortgage rate and borrowing cost of developers would certainly go up due to RBI’s decision.
Noting that corresponding rise in home loan interest rates would affect the housing demand, Puri said increase in developers’ borrowing cost would also squeeze their margin as they would not be able to pass that on to the buyers.
Echoing similar views, realty major Parsvnath chairman Pradeep Jain said: “If home loan rate increases, there will definitely be a concern on affordability and demand”.
The country’s largest private sector lender ICICI Bank joint managing director Chanda Kochhar said housing unit sales has already declined from the last year level and this trend could continue in remaining months of 2008.