Real Estate India - A Fragile Property Market Hit by Increasing Interest Rates
If you are a home loan borrower, be prepared to shell out more money due to the recent 50 to 75 basis point climb, as most of the bank and other financial institutes are going to follow the footsteps of HDFC Bank, the leading player in the housing finance sector, who increased their rate of interest recently.
This hike will result in higher floating rates of interest, which will be dearer by 0.5 to 0.75% along with an increase in new loans. The market leader HDFC just-announced an increase in the interest rate by 50 basis points for existing customers with a floating rate, which now becomes 11%. For fixed-rate borrowers, it is 14%. Existing loans will either be translated into higher interest rates or will have longer repayment tenure. Say, you have taken a loan of Rs. 25 lakh with a rate of interest of 10.75%. If the rate of interest increases by 0.5%, you pay an EMI of Rs. 26, 232 instead of existing Rs. 25,381, which is an increase of Rs. 851 every month. In case of a 75 points increase on basis price, you pay Rs. 26,232 instead of Rs. 24,960. Therefore, you have to pay per month Rs. 1272 more or an increase of Rs 50.88 per one lakh you borrowed. ICICI, the largest private sector bank hiked their home loan interest rates by 75 basis points for existing and new borrowers.
According to Mr. Rajiv Sabharwal, senior general manager and head of retail assets of ICICI for floating-rate borrowers the interest rate is 11.25% now. The prime lending rate for SBI is now 12.75% instead of 12.25%, for Union Bank of India, it is 13.25%. ICICI increased its rate from 12.75% to 13.5%. These rate hikes are a direct influence of an increase in two key rates by RBI. These two policy rates are repo rate and Cash Reserve Ratio (CRR). Both of these increased by 50 basis points each. Reserve Bank had to take these steps to curb inflation, which recently reached 11.42%, the highest in13 years. These steps may result in lower consumer spending. As Mr. Arun Kaul, general manager of Punjab National Bank puts it, banks were borrowing a huge sum from the RBI through the repo route. As the resources become limited and costlier, banks plan to offset this extra cost with higher lending rates. A person pays 35% of his or her income as EMI. As Mr. Krishnan Subramanian, vice-president of India Infoline Ltd. thinks, for many of these borrowers, the recent hike would not be covered by their existing EMI. The amount will be either increased or restructured. This, in turn, would affect the spending power of the borrowers. A loan, which had tenure of 16 years while it started three years back, would now be prolonged to 18 years.
For a 43-year old person, a 17-year repayment would have made him or her free of the loan by the time of retirement. Now, because of the increased tenure, he or she will have to carry the burden even after retirement.
The situation is especially tricky for new borrowers, as Mr. Krishnan pointed out. Because of the increased property prices and interest rates, they will have to go for a smaller house or select a faraway place to stay within their budget. Most of the experts advise treading carefully for the coming three months and to reduce the leverage as much as possible. Keeping money for an emergency, every borrower should try to repay as much as possible to keep the situation under control. These new hikes are going to back hold the growth of the home loan and India property sector experienced. As per Mr. Manoranjan Sharma, chief economist of Canara Bank, developers would be feeling unsecured to take loans for launching new projects. Banks, on the other hand, will be more meticulous on doling out loans owing to the limited resources. Banks are expected to have more defaulters, he adds. The demand in real estate udaipur is steadily increasing. But the affordability is diminishing due to increasing property in Udaipur in Low Price prices and rate of interest. As Mr. Sabharwal puts it, the real estate India industry will be experiencing renewed demand if the prices get corrected or the rate of interest comes down in the near future. Homebuyers should also be prepared for some more such up and down swings in their long tenure of repayment lasting for 20 to 25 years.
This hike will result in higher floating rates of interest, which will be dearer by 0.5 to 0.75% along with an increase in new loans. The market leader HDFC just-announced an increase in the interest rate by 50 basis points for existing customers with a floating rate, which now becomes 11%. For fixed-rate borrowers, it is 14%. Existing loans will either be translated into higher interest rates or will have longer repayment tenure. Say, you have taken a loan of Rs. 25 lakh with a rate of interest of 10.75%. If the rate of interest increases by 0.5%, you pay an EMI of Rs. 26, 232 instead of existing Rs. 25,381, which is an increase of Rs. 851 every month. In case of a 75 points increase on basis price, you pay Rs. 26,232 instead of Rs. 24,960. Therefore, you have to pay per month Rs. 1272 more or an increase of Rs 50.88 per one lakh you borrowed. ICICI, the largest private sector bank hiked their home loan interest rates by 75 basis points for existing and new borrowers.
According to Mr. Rajiv Sabharwal, senior general manager and head of retail assets of ICICI for floating-rate borrowers the interest rate is 11.25% now. The prime lending rate for SBI is now 12.75% instead of 12.25%, for Union Bank of India, it is 13.25%. ICICI increased its rate from 12.75% to 13.5%. These rate hikes are a direct influence of an increase in two key rates by RBI. These two policy rates are repo rate and Cash Reserve Ratio (CRR). Both of these increased by 50 basis points each. Reserve Bank had to take these steps to curb inflation, which recently reached 11.42%, the highest in13 years. These steps may result in lower consumer spending. As Mr. Arun Kaul, general manager of Punjab National Bank puts it, banks were borrowing a huge sum from the RBI through the repo route. As the resources become limited and costlier, banks plan to offset this extra cost with higher lending rates. A person pays 35% of his or her income as EMI. As Mr. Krishnan Subramanian, vice-president of India Infoline Ltd. thinks, for many of these borrowers, the recent hike would not be covered by their existing EMI. The amount will be either increased or restructured. This, in turn, would affect the spending power of the borrowers. A loan, which had tenure of 16 years while it started three years back, would now be prolonged to 18 years.
For a 43-year old person, a 17-year repayment would have made him or her free of the loan by the time of retirement. Now, because of the increased tenure, he or she will have to carry the burden even after retirement.
The situation is especially tricky for new borrowers, as Mr. Krishnan pointed out. Because of the increased property prices and interest rates, they will have to go for a smaller house or select a faraway place to stay within their budget. Most of the experts advise treading carefully for the coming three months and to reduce the leverage as much as possible. Keeping money for an emergency, every borrower should try to repay as much as possible to keep the situation under control. These new hikes are going to back hold the growth of the home loan and India property sector experienced. As per Mr. Manoranjan Sharma, chief economist of Canara Bank, developers would be feeling unsecured to take loans for launching new projects. Banks, on the other hand, will be more meticulous on doling out loans owing to the limited resources. Banks are expected to have more defaulters, he adds. The demand in real estate udaipur is steadily increasing. But the affordability is diminishing due to increasing property in Udaipur in Low Price prices and rate of interest. As Mr. Sabharwal puts it, the real estate India industry will be experiencing renewed demand if the prices get corrected or the rate of interest comes down in the near future. Homebuyers should also be prepared for some more such up and down swings in their long tenure of repayment lasting for 20 to 25 years.
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