Credit policy will dampen demand from affordable housing segment

Real estate developers are expecting the new credit policy to substantially impact the demand from the mid-income group. This group contributes to 85 per cent of the housing demand in the country.

According to real estate consultancy firm, Jones Lang LaSalle India, the low-mid income segment is likely to be more affected.

Mr Ashutosh Limaye, Local Director (Strategic Consulting), Jones Long LaSalle India, maintained that the impact of increased cost of borrowing is not as severe as that of the decreased allowable percentage of borrowing. Currently, banks do not allow more than 75 per cent of the property cost as borrowings.

“This means that the salaried class will have to supply a higher contribution to the cost of their homes, and this has a very tangible impact on the housing demand,” he said.

Mr Lalit Kumar Jain, President, Confederation of Real Estate Developers' Associations of India (CREDAI), points out to a nearly 2.5 percentage point increase in interest rates that have adversely affected the real estate sector. The credit policy will not just discourage first time home buyers but push up monthly payments for current users too.

Need to distinguish

“It's time that the RBI clearly distinguished between the general real estate segment and the affordable housing segment and frame policies accordingly,” he told Business Line .

Industry sources point out that for a buyer in the mid-income segment, a housing loan comprises a bulk of his finances, while it is not so for the upper-segment buyers.

“For an upper-segment buyer, the housing loan constitutes a maximum of 20 per cent of his/her finances. But in the case of a salaried person, the impact of the credit policy is maximum,” Mr Pradeep Chopra, Chairman and Managing Director of Kolkata-based PS Group, said.

He further added that a slowdown in the demand for mid segment and affordable housing was expected in the coming days, especially if home loan rates were to move upwards.

Difficult to quantify

“It is very difficult though to quantify the decrease at the moment,” he said.

Industry sources say that following the rate revision, a home loan of Rs 10 lakh at 10 per cent interest for 36 months will be costlier by around Rs 235 a month compared to what it was at 9.5 per cent interest.

Mr Santosh Rungta, former president, CREDAI, too admitted that considering the tight liquidity, developers' margins will be hit along with a reduction in demand for homes.

“Considering the price sensitivity of the market, a developer will not hike property prices or pass on any increase in construction costs,” he said.

COMMENT NOW