Home demand fell 50% on int hike, may rebounce

Written by Mona Mehta | Mumbai, Sep 27 | Updated: Sep 28 2007, 05:51am hrs
The recent home loan rate cuts have come as good news to home buyers, but in the past six months, the hike in interest rates on home loans effected by banks has actually dented the second home buying market by 50% in Tier I, II and III cities.

According to industry experts, the market would have further dampened, had the hike in interest rates on home loans not been reduced.

However, real estate knowledge partners, international property developers and consultants firmly believe that in the upcoming credit policy, the central bank will announce an interest rate cut.

According to Ganesh Raj, senior partner and head- real estate practice, Ernst & Young, India, It will be very disappointing if the interest rate on home loan rises again. Following the housing finance major HDFC, it is quite likely that several other housing finance companies and banks may also look at reducing the interest rates on home loans.

In 2006, ICICI Bank and HDFC had raised interest rates on home loans by 50 basis points each. However, HDFCs prime lending rate (PLR) is currently at 14%. Its cost of funds has inched upto 8.75% in the first quarter of 2007, against 6.9% in the previous corresponding period.

Anuj Puri, country head and chairman, Jones Lang LaSalle Megharaj said, The demand for first home buyers in Tier II and III cities is rising phenomenally and if housing finance companies are able to reduce interest rate of home loans then these markets will eventually witness demand for second home buyers as well. For this, it is essential for housing finance companies to reduce the interest rates on home loans.

Hemant Shah, chairman, Akruti Nirman further added that since builders are now focussing at developing only two and three bedroom apartments, the demand for second home buying market has started emerging for one-bedroom apartment and one room apartment.

But, due to the lack of supply, the demand for second home buying market is shifting to Tier II and III cities. Developers should look at other alternatives to meet the demand.