Just last week Reserve Bank of India announced a 50 basis point hike in the repo rate in an effort to stem runaway inflation. Whether it will succeed in that direction or not remains to be seen. From a real estate point of view how will it affect potential home buyers?
For starters, those who intend to buy homes should expect an increased EMI since interest rate has gone up. With higher property values, the interest amount will be high and affect the equated monthly instalments. Even existing borrowers on a floating rate scheme will have to bear the burden. If property prices slump and they wish to offload their houses, they might just find it a little bit difficult. Some house owners might just default on repayments. Banks are also tightening lending terms to property developers.
On the other hand, property developers have been holding on to built houses since rates have been rising. In an ever-appreciating market, they naturally want to sell at higher prices. This interest rate could dampen their tenacity and we might witness builders trying to offload property at reduced prices. Whether property prices will drastically slump is another question. There is a feeling that they might just regulate prices and release properties to keep their cash flows steady. Builders face problems of higher land prices, higher priced steel, cement and other inputs and this rate increase could be a further dampener, forcing them to cut profit margins due to decreased demands.
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