Moumita Bakshi

New Delhi, June 28

Marginally costlier home loans may have come as a slight disappointment to aspiring home owners in the country, but the real estate industry is not losing any sleep over it. Leading real estate developers feel that the recent hike in home loan rates by housing finance companies ICICI Bank and HDFC is unlikely to dampen the buoyant consumer sentiment prevailing in the realty market, or impact the rush of bookings.

"There will not be any huge impact, as the increase is not significant. Moreover, there had been talk of rate hike for the last six months, and, hence, the hike is on expected lines. The booking will remain at the same level in our opinion," Mr Pradeep Jain, Chairman of Parsvnath Developers, said.

According to Mr Pranav Ansal, Chairman of Ansal Township and Land Development, an increased awareness about rising property prices and surging demand, coupled with factors such as tax incentives and a high return on residential property, would arrest any softening of sentiments in the residential market.

"Most of the people who take loans are currently living on rented property. The 50-basis-points rise in home loan rates would not have any impact, as in many cases, both members of the family opting for home financing are earning," he said. Mr Ansal said that the market could absorb an increase of 1-1.5 per cent without affecting buying decisions. "If the rates go beyond that, we will have to reassess the situation," he pointed out.

Last week, ICICI Bank and HDFC hiked the interest rates on both floating and fixed rate home loans by half a percentage point. The two firms are estimated to account for close to 50 per cent of the home loan market. The increase means that a repayment period of 20 years now gets extended to 22 years, if the equated monthly instalment (EMI) remains the same.

Similarly, for a loan at 8 per cent, the monthly instalment per Rs 1 lakh for 20 years will increase by just over Rs 30 to Rs 837. Vatika Group said that while the increase was not sharp enough to defer buying decisions, it could prompt people to consider properties of relatively lesser value. "If someone was planning to purchase a house for Rs 40 lakh, he may now look at a house in the range of Rs 35 lakh. There will be more demand for slightly lower priced property," Mr Pankaj Pal, Vice-President (Marketing), Vatika Group, said. Mr Pal said that this trend could, in turn, lead to a downward pressure on property valuation.

(This article was published in the Business Line print edition dated June 29, 2005)
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