As inflation crosses 8 per cent, the concern in the property sector is the question of home loan interest rates. ‘So far so good’ best describes the situation, say banks and developers.

Homebuyers are unlikely to get any relief in the form of lower prices from developers. For their part, the developers point to continuously increasing costs of construction driven by material and labour costs and land prices, which are threatening their margin. Buyers will soon have to contend with hikes in prices, they say.

Most bankers predict that the next few months would be crucial, though they are not willing to commit either way on the movement of home loan interest rates. Bank managements are for now shying away from hiking rates. Homebuyers can only keep their fingers crossed.

For the benefit of the middle-class segment, which forms the major chunk of the consumer accessing home loans and buying property, banks and housing financial institutions seem to have done their bit in reining in interest costs.

Recently, the largest home loan provider among the banks, the State Bank of India, hiked to Rs 30 lakh from the earlier Rs 20 lakh, the home loans eligible for lower rate of interest — ranging between 10 per cent and 10.50 per cent depending on the period of the loan. This relief works out to about 0.25 per cent.

This is in line with the Reserve Bank of India’s latest monetary policy announcement bringing down the risk weightage on home loans up to Rs 30 lakh for banks to 50 per cent for capital adequacy purpose.

While other banks may not have adopted this and passed on the benefit to the customers, most banks, including SBI, have increased the period of the home loans up to 25 years. This too helps in bringing down the monthly outgo towards the home loans for the borrower.

Overall, banks have responded positively to the needs of the home loan segment and contributed to maintaining the momentum in purchases.

According to the National Housing Bank, the home loan refinancing institution, the demand from banks for home loan refinance is on the rise and the growth is significant on a year-on-year basis.

Banks, too, echo similar sentiments, such as the market is good, the economy is growing and despite hiccups — growing inflation — there is good demand and disbursals are robust. But there is a slowdown in the growth of housing loan disbursals.

While the support from banks is a welcome relief to the consumer, the actual costs of owning a house is bound to go up for the buyer — a factor dictated by the growing inflation and costs of inputs.

The RBI’s statistics show that there is a slowdown in the growth of housing loan disbursals. The year-on-year growth in housing loans was down to 12 per cent in February 2008 compared to 46 per cent in the same month in 2007, according to the May 2008 bulletin.

This trend is bound to continue with the increasing costs affecting affordability for the homebuyers. From the developers’ side, the consumers can only anticipate higher costs. If the construction costs increase, then the cost of built-up space has to go up for the consumer.

Builders estimate that the base price for residential units would have to go up by Rs 300-400 a sq.ft — an estimate based on the mass market price segment of about Rs 3,000 a sq.ft — for the projects to be viable. Unless the price of inputs come down, there can be no respite for the buyers on the price front.

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