Kerala - Kochi   

Slowdown in housing loan disbursal

KOCHI: Rising home loan rates have severely impacted the housing sector, as its growth has fallen to 26.6 per cent in 2006-07 from 29.1 per cent in 2005-06 and is anticipated to slow down further to touch between 17 and 20 per cent in the current fiscal.

These findings have been incorporated in a study on ‘Impact of rising home loan rates’ carried out by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The study points out that the real estate market has already seen a drop of 60 per cent in sales.

Its impact could further worsen if reversal in rising interest rates for housing is not addressed urgently.

Prior to fiscal 2005-06, the preceding three fiscals had seen the housing sector record a year-on-year rise of 49.5 per cent, 73.9 per cent and 48.6 per cent respectively. Since no suitable corrective measures to contain the interest rates on housing segment have been effected, nearly 60 per cent of home aspirants are staying away from the pre-launch sales.

“The builders usually rely on the advance amount received by way of pre-launch bookings. The money is collected well before starting construction work but loans are becoming costlier as the buyers are not willing to expose themselves to an extended time period. Instead, they wait for the completion of construction. Several developers have, therefore, deferred the launch of their residential projects,” says the study. Referring to differential between EMIs, the study says the approximate change in EMI for housing loan of Rs.10 lakh works out to be Rs.3,250 and puts an additional burden of Rs.39,000 per annum on end-users.

The study also says that speculators play a significant positive and negative role in pushing the prices of property by more than 20 per cent and rise in interest rates helps speculators to dictate the prices.

As per the Chamber’s findings, the recent boom in property market coupled with low interest rate regime had served as a breeding ground for speculators. So much so that speculators included a whole gamut of players such as small property brokers, big or small retail investors apart from big players. The speculators usually buy units in bulk by paying margin money and creating an artificial shortage, putting pressure on the prices.

With the funds becoming dearer, there has been a significant slowdown in speculated purchasing activities by investors for at least short term. The risk rewarded ratio of the speculators has been thrown out of gear. The risk has magnified as the buyers are adopting a “wait and watch policy” for the time being with the expectations of correction doing rounds, concludes the Chamber’s assessment. The real estate sector market size is currently estimated at $15 billion which has been growing between 35 and 38 per cent in the last couple of years as a result of which huge investments have poured into it.

From 2008 onwards, the real estate sector is likely to grow between 40-45 per cent, but will witness a slowdown in metros and large cities by 2010. As a result of this, the reality sector in tier II and tier III and even tier IV cities would make major expansion drive for providing dwelling units to the neglected lot of society, according to the study.

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