Realty sector to be hit if home loan rates rise by more than 2 %
By Joseph Samson
Apr 13, 2010
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The upcoming monetary policy is likely to bring with it a rise in interest rates by the banking industry. Home loan rates on are very likely to rise after this credit policy review.

Experts have a say that if home loan rates go up by more than 2 percent then the realty sector is going to feel most of the heat.

"A 0.50 per cent hike in interest may make an emotional impact on buyers. But if it goes to a level of 2-2.5 per cent, then it would definitely affect the sector," real estate money management and services firm, Jones Lang LaSalle Meghraj's (JLLM) Chairman & Country Head, Anuj Puri said.

The policy tightening measures by the RBI are all due to the towering inflation rates in the country. The worry of rising inflation has left the regulators with no choice but to tighten the policy rates which mean a rise in interest rates.

Banks like SBI have already hinted a hike in interest rates following the credit policy review coming in 20th April 2010. SBI is considered the top most lender of home loans. A rise in rates by SBI is very likely to hit the realty sector.

But Puri hopes that the revised income tax norms would help in negating the negative impact in long term.

"While interest rates do have an effect on residential real estate sales, the fact is that the newly-revised income tax norms will negate any negative impact in the long-term," Puri said.

"In the last budget, Finance Minister assured that the Direct Tax Code, which will be introduced in the next fiscal, will bring more money into the taxpayers' pocket. This will help buyers to overcome the interest rate-hike," he said.


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