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Cut in Home Loan Interest Rates May Revive Residential Real Estate in India

'Feel Good' for Customers, Developers and implications of the ploy on the banking
Banks, this Diwali… sector; it is finally the Indian real
Good times waiting for indian Real estate industry and consumers who would
Estate. Hard-pressed with the falling be benefited of the same.
demand, and slackening growth numbers, Home loan interest rate is the biggest
Indian banks have finally slashed and the most critical factor that drives
interest rates on home loans. Indian real estate, and the hike in
Interestingly, the banks have interest rates, of about 5-per cent in
appropriately chosen the period of Diwali the past couple of years, has hammered
to cut the interest rates and treating down the industry, a senior official of a
their move as a festive offer. construction group pointed out.
The bankers, on the positive note, are Further, as per the recent report by
keeping their fingers crossed and expect Assocham 'Impact of Rising Home Loan
that the initiative would encourage Rates', demand for the residential India
people to arrive at a decision of buying Real Estate fell down by an average 20
a house. On the other hand, real estate per cent in the past 12-months, owing to
developers also feel that the cut would the sharp rise in interest rates.
probably revive the ailing residential Therefore, softening of interest rates
property markets, and after Diwali, the would bring back life in the industry.
picture would be far clearer as to how Till this moment, India's biggest public
markets would behave further. sector bank SBI had dropped its interest
In actuality, it is in the interest of rate on home loan by 0.75 per cent to
banks only to reduce rates, as the growth 10.50 per cent. Private sector major HDFC
rate in home loan lending segment has also has also reduced the rate from 11
been on downslide over the past 3-year. per cent to 10.50 per cent. ICICI, Bank
Earlier to fiscal year 2005-06, Indian of Baroda, etc. have also followed the
banks were posting year-on-year (YoY) suit by reducing their lending rates
growth rates of 49.5%, 73.9% and 48.6% between 0.50 and 1.00 per cent.
respectively, however the same fell down Earlier, the rates had risen from the
to 29.1% in 2005-06, and 26.6% in range of 6-7 per cent of 2000-2002, to as
2006-07. In absence of rate-cut, this much as 11-14 per cent in 2005-2007. Such
number was estimated to further go down a steep rise definitely put a deep impact
to 15-17% in the current fiscal. And in on the pockets of the people intending to
this case, the decision to curtail buy residential properties by taking home
interest rates was inevitable, bank loan, and the bearing was quite visible
officials admit. on the demand for housing property,
Meanwhile, whatever may be the across the country.




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