Real estate market could be hit further by rising home loans

New Delhi, Jan 10 (UNI) The 15 billion dollar real estate market which witnessed a sales drop of 60 per cent in the metros, may further worsen if reversal in rising interest rates for housing is not addressed urgently, a study said.

According to the study conducted by industry body Assocham on 'Impact of Rising Home Loan Rates', the housing sector which has declined considerably to 26.6 per cent in 2006-07 may slow down further to touch between 17 to 20 per cent in the current fiscal, due to rising home loans.

The study pointed out that major expansion drive in tier II and tier III and even tier IV cities, for providing dwelling units to neglected lot of society, would trigger the growth of this sector between 40-45 per cent this year, but witness a slow down in metros and large cities by 2010.

''Since no suitable corrective measures to contain the interest rates, particularly on housing segment have been effected, nearly 60 per cent of home aspirants are staying away from the pre-launch sales,'' Chamber's President Venugopal N Dhoot said in a statement.

The builders, usually rely on the advance amount received by way of pre-launch bookings, which is collected well before the starting of construction work, but the loans are becoming costlier as the buyers are not willing to expose themselves to an extended time period, the study said.

Referring to differential between EMIs, prevailing at 7 per cent and 12 per cent, the study said that the change in EMI for housing loan of Rs 10 lakh works out to be Rs 3250 and puts an additional burden of Rs 39,000 per annum on end-users.

Similarly, a housing loan of Rs 30 lakh, EMI differential works out to be Rs 9770 with additional fiscal burden of Rs 1,17,240 per annum. On 50 lakh housing loans, the EMI change is estimated at Rs 16,290 with annual burden of Rs 1,95,480 on those who have taken housing loans in this segment.

The Study further said that speculators also play a significant positive and negative role in pushing the prices of property by more than 20 per cent and rise in interest rates help speculators to some time dictate the prices.

As per Chamber's findings, the recent boom in property market coupled with low interest rate regime had served as a breeding ground for speculators. So much so that speculators included a whole gamut of players such as small property brokers, big or small retail investors apart from big players.

The speculators usually buy units in bulk by paying margin money and creating an artificial shortage, putting pressure on the prices.

With the funds becoming dearer, there has been a significant slow down in speculated purchasing activities by investors for at least short term.

The risk rewarded ratio of the speculators has been thrown out of gear. The risk has magnified as the buyers are adopting 'wait and watch policy' for the time being with the expectations of correction doing rounds, the study said.

UNI SLD BJR BD1630