Impact Of Rate Hike On Real Estate

Real estate companies observes their cost of borrowing rising by 1% age point as the central bank has increased the repo rate by 0.5 % and cash reserve ratio by 0.25 %.
The rate hike will push up the corporate lending rates. This, in turn, is anticipated to further strain the balance sheets of realty companies, already reeling under a fund crisis in the wake of slower property sales, higher lending rates, increase in input costs and the central bank’s measures to check conventional sources of funding.
“The borrowing rates will be 1% higher. The rate hikes will ultimately hurt the balance sheets of real estate companies. The cost of funds for our upcoming power projects will go up drastically,’’ said Ajith Mittal, president, corporate affairs, Indiabulls Group.
Indiabulls’ property arm Indiabulls Real Estate is into residential, commercial and retail realty development. It has ventured into power and is setting up power projects in Jharkhand and Maharashtra.
Hitesh Agrawal, head of research, Angel Broking, said, “We deduce the rate hike impact to be visible not only on the rate sensitive sectors like banking, realty and auto, but also on corporate profitability as a whole as most sectors and companies have embarked on huge capacity growth plans.
Property transactions in the major Indian cities such as Mumbai and Delhi have fallen 10 – 15 % because of higher lending rates in the previous 6 months, limiting the cash flows and execution skills of developers.
“Developers need to think in the hike in lending rates, which will lead to a dip in demand. Nevertheless, a rectification in real estate prices will make up for the dip in demand caused by increase in rates,’’ said Mittal.
The majority of real estate companies have been watchful in buying land and beginning new projects, given the tight monetary picture. Akruti City, another Mumbai-based developer, is concentrating on housing projects.

2 Comments

  1. yanni raz
    Posted July 30, 2008 at 11:53 am | Permalink

    How much is your home worth? Well, it all depends where you live.

    The real estate market is still shaking. New data suggests that home prices have hit a new record low. In every new study that comes out, homeowners from Miami, to Las Vegas, Phoenix and Los Angeles, have seen their home value go lower every time.
    Is that disappointing? Of course it is.
    Should we sell? Is not a good time.
    Should we stick to it? Yes, if you can.
    Have we hit bottom? Nobody knows.

    Banks are facing their worst foreclosure crisis.
    Don’t take me wrong, it’s good if you are in the market to buy a home for yourself or if you are an investor, but if you are not, and you own a home, most likely the value of your property is down at least 15 %.

    Why do banks care if you are loosing your home? By having to sell repossessed homes, banks have to literally slash their prices down. It gets very costly for them, after all, they have to pay property taxes, maintenance costs, and whatever utilities that need to be paid, all of this expenses for a house that it’s just sitting there, vacant, and the bank is getting nothing in return.

    The latest study by the S&P/Case-Shiller Home Price Index of 20 cities, revealed the news that for 22 consecutive months home prices dropped. Only from April to May, 2009 the decline was of 0.9 %

  2. Posted July 31, 2008 at 1:41 am | Permalink

    They could be dismissed as a nondescript group of people chatting on the lawns of an exclusive club or strolling down Marine Drive. Their clothes are quiet, their gait without swagger. Indeed, it’s hard to believe that these are the very men who have a vice-like grip over some of the biggest builders in the country. They are India’s wealthiest moneylenders who, even as the banks tighten their belts, loosen their own purse-strings. With financial institutions and banks increasingly restricting loans to developers, these moneylenders primarily belonging to the Sindhi, Marwari and Kutchi communities have stepped in to play their part. These moneylenders are mainly active in three cities Mumbai, Bangalore and Chennai. The loans are given to builders for short periods, from three to six months. The amounts could range from a couple of crores to as much as Rs 100 crore. If the amount is substantial, about 10 to 15 of those in the group are believed to come together to fund the project. But many diamond merchants have burned their fingers because of the crash in the stock market. Then there are the politicians. It’s widely believed that many builders are being backed by politicians, including ministers, from different political parties. One construction group has seen its fortunes steadily rise over the last five years because of its political connections.For more view- realtydigest.blogspot.com

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