The Hindu Business Line : Hike in interest rates not to hit housing demand: Realtors

THE real estate industry on Friday said that recent marginal increase in interest rates would not adversely impact the demand for housing but warned that a further 100-150 basis points increase in rates could hit the buyer.

"The increase in housing interest rates has been about 0.5 percentage point, which is not much. We just have to see that it does not increase too much or it will affect demand," Mr Sushil Ansal, Chairman of Ansal Properties and Industries Ltd, said on the sidelines of a Real Estate Summit organised by FICCI.

According to Mr Niranjan Hiranandani, Managing Director, Hiranandani Constructions Ltd, the home loan rates have witnessed a drastic reduction in the last few years.

"About a few years back the loan rates were hovering around 17 per cent and today it is about seven per cent. A 0.5-1 percentage point hike would not have much effect," he said but admitted that marginal buyer may face `some difficulty'. "There has been no reduction in bookings so far, in fact after the announcement the enquiry is more," he said.

Mr Hiranandani opined that the real estate prices were likely to go up and more people would buy flats despite the increase in interest rates. "Over the next one year it (the prices) will rise, but I cannot say beyond that," he added.

Echoing the industry opinion, Mr Deepak Parekh, Chairman of HDFC Ltd, said that while the 0.5 percentage point increase in interest rates would not have much of an affect, an increase of 3-4 percentage points would hit affordability. He, however, opined that the interest rates were unlikely to go up further in next 3-4 months.

According to Mr Akshaya Kumar, Chief Executive Officer of Colliers International (India) Property Services, a 1-2 percentage point increase in interest rates on housing loans would not impact the sector. "If the interest rates increase by over two percentage points, then it will definitely affect the momentum in the sector," he pointed out.

Earlier, while addressing the summit, the real estate industry sought opening up of foreign direct investment (FDI) in the sector. "FDI in real estate must be opened up. Developers, chambers, bankers and financial institutions all of them agree on this... But we are not able to do it." Mr Parekh said.

Mr Ansal, who is also Chairman of Housing Committee of FICCI, pointed out that allowing FDI in housing was crucial, as the sector required Rs 4 lakh crore of investments.

Responding to the industry demand on the FDI issue, Mr Anil Baijal, Secretary, Ministry of Urban Development and Poverty Alleviation, said while housing was not an area under his Ministry's jurisdiction, he was in favour of opening FDI in the segment."The existing policy needs to be reviewed, and the concerned people are holding discussions on this," he said adding that such a move would not only bring additional funds but also improved quality and standard.

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