Rise in CRR rate to affect real estate

February 15, 2007: CITY BUILDERS aren't sure when the high tide of the home loan rates is going to ebb in the coming months. And it is certainly not good business for them during the next six months as middle class aspirations for a housing unit would die out - at least for the next six months with equated monthly installments (EMIs) on loans becoming a bit to uncomfortable to deal with for the salaried class.

With nearly 1,200 flats under construction in Gomti Nagar locality itself and another 1,000 flats spread across the city's landscape expected to be ready for possession from 2008-09, the builders feel the rise in CRR rate by the country's apex bank, the Reserve Bank of India (RBI), to cut inflationary conditions in the country economy would serve as a temporary setback to the pace at which housing units were being booked by the middle class in the past one year in the State capital.

"The lending by housing finance companies are already down by almost 20 to 25 per cent across the country.

If the CRR becomes chain reaction with upward movement in home loan interest rates, it is bad news for the entire real estate sector. However, this is unlikely to happen in the long run," commented Manish Khemka, promoter of Investmania Properties.
He said that the middle class is likely to hold back their home purchase plans for atleast a few months.

"Any hike in CRR is bad news for the entire real estate sector as well as banks and other lending institutions. Why just Lucknow? You could feel the heat of rising interest rates even in Agra or Kanpur," commented a prominent builder who preferred not to be quoted.
He said that RBIs attempt to cut inflation was in the right direction but signalled a slowdown in the economy which would impact the real estate sector in the coming months. "When people do not have the buying power who would purchase housing units?", the builder stated.

The estimated cost of the real estate projects under construction in Lucknow is estimated at Rs 3,000 crores with major construction activity in Sultanpur, Faizabad and Rae Bareli road localities besides the posh Gomti Nagar, where the builders feel the investment would be almost 50 per cent of the entire value of the projects coming up in the State capital.

On Thursday, the Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BoI) and HDFC already decided to raise home loan interest rates immediately while ICICI Bank had decided to adopt a "wait and watch" policy.

Source: Hindustan Times