Sunday, July 6, 2008

Builders feel the pinch as well

CHENNAI: The rise in the interest rate of housing loans has not only left a gaping hole in the pockets of customers, it is also threatening to shake the foundation of many a builder in the city. "With the sales of apartments falling by nearly 30% in the past one year, we do not know where we are heading," one builder said.
Prakash Challa, president of the Tamil Nadu unit of the Confederation of Real Estate Developers' Association of India, said the marketability of projects has been badly hit by multiple reasons in the past one year. "The cost of raw material like steel and cement has skyrocketed. The inconsistent policy of the Central government on foreign direct investments in the real estate sector has almost stopped fund flow into our field. Banks also have virtually stopped project funding. Our only source for funding in such a scenario was from the end buyer," he said.
"Now, with the interest rates going up, people are hesitating to buy. They are not sure as to where the interest rates will stand one year from now. Over the past three years, equated monthly instalment for loans has increased by close to 50%," Challa said.
According to him, those unable to bear the burden of a higher EMI would be forced to stretch their loan repayment for a longer duration.
People with higher dispensable income used to go for more than one housing loan earlier. "Some customers have taken up to three housing loans as their salaries are very high. But, owing to the RBI putting stringent regulations in place, banks are now refusing to give more than one housing loan to an individual, regardless of his repayment capacity," lamented Challa.
Says Jain Housing managing director Sandeep Mehta, "With the floodgates being opened for steep hike in housing loan interest rates, fly-by-night operators in the industry will be washed away in no time. In my opinion, the first-time customers will adopt a wait and watch policy for a short while and once they realise that interest rates are not going to fall, they will take the plunge and buy."
P V Shanmugam, MD of Kgeyes Residency feels it is not the end of the road for builders. "Sales might get hit in the outlying areas of the city, where the infrastructure is lacking. But within the city, there is a huge demand for housing. There are enough people ready to invest if they find a good project in upmarket areas of Chennai. When there is a general slowdown in the real estate sector, land prices might slightly fall in these areas, perhaps by 10 to 15%," Shanmugam said.

1 comment:

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