Property Plus
Coimbatore
All eyes on credit policy
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Are we going to see a scenario where there will be hardening of interest rates, wonders SRIKALA BHASHYAM
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The much awaited announcement relating to inflation management from the Reserve Bank of India came last week in the form of CRR (cash reserve ratio) hike. As expected, RBI has resorted to a 0.5 per cent hike but has decided to do it in a staggered manner. Since a hike in CRR is expected to take out the liquidity from the system and in turn put pressure on interest rates, the RBI move is expected to result in hardening of interest rates. According to reports, the banking sector has already seen a squeeze of Rs. 18,000 crore from the system and yield on short-term commercial paper briefly touched a level of 10 per cent.
For the property sector, the RBI move will have a significant impact as interest rate scenario largely depends on the liquidity in the system and the prevailing bank rate. While the liquidity issue has been addressed through the CRR hike, all eyes are now on the bank rate. The Reserve Bank is slated to announce its credit policy for the coming season on April 29.
For home loan borrowers, the tightening money supply situation has already become a part of the system as banks have hiked their home loan rates. Most banks and housing finance companies have pegged their rates at around 10-11 per cent and the biggest worry now is whether the rates will move up further after the credit policy.
According to market sources, banks have also tightened their lending norms and are less generous with their procedures. For instance, there is more stringent quality assessment of builders and property and margin money rules are strictly followed.
Good news
Coming back to the relevance of the recent CRR hike, technically, a measure which sucks away liquidity should push up the interest rate but the good news for home loan borrowers is that banks have restrained from a rate hike. One of the reasons could be the fact that banks are still comfortable with their liquidity and there is a general feeling that any further hike could dampen the demand for credit.
It is a well known fact that property investors have been forced to cough up an additional amount of nearly 15-20 per cent (because of the interest rate moving up from 7.5-8 per cent to 10-11 per cent) on the interest front besides a 25-40 per cent rise in property rates.
This has already had its impact in the form of lower off-take in metros and larger cities. A further rise in interest rate is likely to lower the demand for home loans, which has been the case in the last couple of quarters.
For those sitting on home loans, the current year could be challenging as floating rates have already gone up by at least two percentage points in the last one year.
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Property Plus
Coimbatore
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