During 2011, high inflation remained the focal point of concern, debate and policy decision making. Year 2012 has begun with high interest rate being the agenda of debate and as it appears today most of the actions this year would center on it. The first signal came as the RBI announced a 50 basis points (bps) reduction in Cash Reserve Ratio (CRR) fuelling expectations of easing interest rate scenario.
For the interest rate sensitive real estate industry high stakes are involved when leveraged balance sheet and high home loan rate coincides with economic slowdown. At regular intervals, the industry has been raising its voice for reduction in interest rate on the premise of providing respite to the house buyers. However, it is noteworthy to debate who would be the real beneficiary if interest rates come down and whether reduction in interest rate is sufficient to boost housing demand.
From the consumer's point of view, high mortgage rate, unaffordable property prices coupled with poor employment outlook ensured that buyers kept postponing their decision to buy a house. The data from home loan provider HDFC indicates that the disbursals grew by 19% in Q3 FY12 compared to 23% in Q3 FY11. Quantum of home loan approvals, which is an advance indicator of lending activity going forward, grew by 21% in Q3 FY12 in comparison to 28% in the same period last year. HDFC is the market leader amongst housing finance companies (HFCs) and the numbers for other HFCs could be worse since the pace of new project launches almost halved in 2011 in comparison to the previous year. During the last two years, the home loan interest rate has gone up by at least 300 bps thereby inflating housing loan EMI's by as much as 25%.
For the interest rate sensitive real estate industry high stakes are involved when leveraged balance sheet and high home loan rate coincides with economic slowdown. At regular intervals, the industry has been raising its voice for reduction in interest rate on the premise of providing respite to the house buyers. However, it is noteworthy to debate who would be the real beneficiary if interest rates come down and whether reduction in interest rate is sufficient to boost housing demand.
From the consumer's point of view, high mortgage rate, unaffordable property prices coupled with poor employment outlook ensured that buyers kept postponing their decision to buy a house. The data from home loan provider HDFC indicates that the disbursals grew by 19% in Q3 FY12 compared to 23% in Q3 FY11. Quantum of home loan approvals, which is an advance indicator of lending activity going forward, grew by 21% in Q3 FY12 in comparison to 28% in the same period last year. HDFC is the market leader amongst housing finance companies (HFCs) and the numbers for other HFCs could be worse since the pace of new project launches almost halved in 2011 in comparison to the previous year. During the last two years, the home loan interest rate has gone up by at least 300 bps thereby inflating housing loan EMI's by as much as 25%.
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