Home Loans Likely To Fall By Over 6% In 07-08

Rising home loan rates have severely impacted the housing sector as their growth has fallen to 26.6% in 2006-07 from 29.1% in 2005-06 and in the absence of suitable corrective measures, housing loans growth will further slow down between 17-20% in 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), further point out that the real estate market has already seen a drop of 60% in sales. The metros in which the drop was noticed include Delhi, Mumbai, Kolkata and Bangalore and its impact could further worsen if reversal in rising interest rates for housing is not addressed urgently.

Prior to fiscal 2005-06, preceding three fiscal had seen housing sector recorded, a year-on-year rise of 49.5%, 73.9% and 48.6% respectively.

“The builders, usually rely on the advance amount received by way of pre- launch bookings. The money is collected well before the starting of construction work but the loans are becoming costlier as the buyers are not willing to expose themselves to an extended time period. Instead, they are waiting for the completion of the construction. Several developers have therefore deferred the launch of their residential projects”, says the Study. Nearly 60% of home aspirants are staying away from the pre-launch sales.

Referring to differential between EMIs, prevailing at 7% and 12%, the study says that approx. change in EMI for housing loan of Rs.10 lakh works out to be Rs.3250 and puts an additional burden of Rs.39,000 per annum on end-users. Likewise, on Rs.20 lakh housing loan, approx. change in EMIs at the interest rates varying between 7% to 12% works out to be Rs.6520 and puts its taker an additional burden of Rs.78,240 per annum.

A housing loan of Rs. 30 lakh, EMI differential works out to be Rs.9770 with additional fiscal burden of Rs.1,17,240 per annum. This is on Rs.40 lakh loan, the change in EMIs between a period of moderate interest and that of higher interest works out to be Rs.13,030 with additional annual burden of Rs.1,56,360. Similarly, on 50 lakh housing loans, the EMI change is estimated at Rs.16,290 with annual burden of Rs.1,95,480 on those who have taken housing loans in this segment.

The Study also says that speculators also play a significant positive and negative role in pushing the prices of property by more than 20% and rise in interest rates help speculators to some time dictate the prices. With the funds become dearer, there has been a significant slow down in speculated purchasing activities by investors for at least short term.

Buyers are adopting `wait and watch policy’ for the time being with the expectations of correction doing rounds, concludes the Chamber’s assessment.

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