Expensive Home Loan Rates can affect Real Estate Growth

Interest rates can go up further with Reserve Bank of India hiking its short-term lending rate by 0.25 percentage points with immediate effect. As Reserve Bank is raising repo rates, a downturn in property prices is expected soon resulting from expensive home loans as increase in repo rates will push banks to revise their interest rates. Even if the Banks do not increase interest rates right now, chances are a further increase in the repo rate later in the year will certainly push up your EMIs.

It is better to hold on your real estate deals for some time. Property developers hit by falling sales and liquidity issues may reduce prices to enchance demand. New and ongoing realty projects are heading for a crisis due to lack of demand.

Even bigger players, sooner or later, can see further decline in prices. Many builders, especially in Mumbai, are now offering discounts to attract buyers. There is a credit crunch and smaller developers may be in selling at discounts. We have to wait for the next 3 months for a conclusion. Property prices in Delhi NCR have also witnessed some correction during last 6 months. Real Estate stocks have also witnessed a high volatility recently and the BSE Realty Index has lost many points.

Many realty stocks are trading at a multiple higher than Sensex stocks and experts beleive that it is very unlikely for investors to opt for real estate stocks till the interest rates eases out. Mismatch in pricing for property sellers and the buyer is the most critical issue for the real estate firms.

- The repo rate is the rate at which RBI lends money to banks under its liquidity adjustment facility.