Dream or reality

People need home and for this need they need to pay penalty, with recent hike in Benchmark rates, housing loan are set to get more costly. The rate hike will definitely impact the housing sector reducing the demand of loan and eroding bottom line of builders due to reduced margin. Prospective buyers are now in dilemma as to buy now or wait for a correction in prices

With banks already increasing there lending rate the EMI’s are certainly going to step up and this will dilute the interest of many prospective buyers, but whether this will bring a correction in property prices or not, that is not very evident.

The reason of property prices not cooling down is because with the developers cost incurred in terms of labor, raw material and borrowing have gone up and they can’t reduce the cost below certain point. Cost of funds for developers is already very high, ranging up to 16%, depending on the credibility of the borrower, and banks have not been willing to lend to the real estate sector in the recent past. Apart from all these factors in mid term the property prices will go up.

There might be some correction in metro cities and that too for high end residential and commercial units, but in non-metro cities correction seems to be not in horizon, as the prices are still affordable and there is always a buying interest and the current credit policy will not discourage the first time buyers. Only Buyers with investment perspective will hold on there purchases but the real buyer will not deter the jacked up EMI’s.

This is also high time for housing finance companies to segment the home buyers i.e. buyers for affordable housing and buyers for luxurious housing and frame the policies accordingly. For an upper segment buyer the loan contribution is merely 20% of the entire cost whereas for the affordable housing segment the contribution ranges between 80-100% and with every rise in financing rates the buyer of affordable housing feels the heat.

I’m sure that the decision maker will understand the dynamics of the home finance and will create diffentiation among the class of buyers. I also feel that Home finance institution should absorb the increase cost of finance and should not download it to the customer as the housing loan being one of the most secured loans and with India seen on growth trajectory there seems to be no reasons for doing this right away.

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