Thursday, May 10, 2007

Hike in Rate of Interest - Impact on Real Estate Market

Hike in Rate of Interest - Impact on Real Estate Market

About two years back golden period started in the Indian history of Bank Loans where getting a housing loan started becoming much much easier and cheaper with a longer repayment period than what previously available from almost all banks.
Rate of interest for housing loan went down up to around 7% and borrower's margin for the project cost went down up to 10% with an extension of repayment period up to 25 years. Due to competition in the housing loan market among different banks and housing finance companies, borrowers (i.e. consumers and investors both) were at the benefit by different relaxations and facilities offered by them.
Due to easy supply of funds in the form of various housing loan schemes, builders and real estate developers got advantage of easy liquidity of money resulted into more buying of land for new housing projects which ultimately fueled the real estate market and a sharp rise in the property prices took place which lead to speculation in the property market supported by investors and speculators.
Due to varities of reasons and factors related to growing economy at a comparatively faster rate within a short period of time, a sudden rise in the inflation rate occurred. In order to abate the inflation rate the Finance Ministry of India came into action by taking number of measures among them one was to check the money market liquidity position by rising rate of interest for lending money by Banks. As a result, rate of interest for different type of housing loan went up to about 10.5% making the borrowed money more costly in comparison with the scenario in the recent past.
As a result the housing loan became costlier and the house purchasers or investors started adopting wait and watch policy on any fresh buying with the help of money borrowed from Banks. If the rate of interest continues to rise then the finance activities in the housing sector may come to a long halt that may result liquidity crises in the Real Estate Market and if it happens, it will affect the property prices negatively by 10 to 15% in the near future.

News Letter -
Ahmedabad, Gujarat.
Date : 10 May 2007.
.....visit Gujarat Informatics Centre for Land(GICL).....


At April 10, 2013 at 3:59 AM , Blogger HcoRealEstate said...

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