Indian Real Estate

Rising interest rates are not likely to dampen demand in the housing sector, feels economic think-tank NCAER.

Increasing interest rates are less likely to slow down housing demand and consequently may raise real estate prices further, NCAER said in its Quarterly Review of the Economy released recently. Citing the reason for the rise in prices, the report said, there is a shortage of homes in every segment of society and with rising income and improvement in quality of houses, the prices are bound to rise.

Home loans over one last year have moved quite substantially as there is sharp increase in credit to deposit ratio of commercial banks. The credit to deposit ratio has gone up from 0.62 in 2004-05 to 0.70 in 2005-06. However, it remained unchanged in the first quarter of the current financial year, the review said.

According to industry estimates, home loan disbursement was pegged to grow by 18 per cent to Rs.1,00,000 crore.

However, leading global wealth manager Morgan Stanley has said that there may be a slow down in the high-end real estate, which would eliminate speculators but not the actual users.

India may witness a slowdown in volume but not in prices, it said. Despite decline in the transactions, the prices have not gone down, it said, adding that there would be no depression in near future. Reserve Bank of India had hiked its short-term interest rates by 0.25 per cent in the July 25 quarterly review of monetary policy, which was the second such step in in less than two months. Cost of funds have been on the rise in the last 12 to 15 months and the 0.25 per cent increase will put further pressure, according to an official with LIC Housing Finance. He said the cost of funds has increased by 1 per cent in the last one year and margins are shrinking in every quarter. - PTI

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