‘When I can afford it, let me buy the house’

The real estate industry has shrugged off worries about impact of an impending rate hike by Reserve Bank of India because investments in homes continue in anticipation of a rise in property prices. Many economists believe a case for a fifth round of policy rate hikes later this month was strong because food prices remain high, and in late August climbed again after showing some softening earlier in the month. A rate hike — 25 basis points in policy rates, say most economists — could come on September 16, the day RBI will unveil its first-ever mid-quarter policy review.

However, developers were confident residential sales will expand despite likely hikes by RBI less than 10 days away. The demand will be firm because investors in homes fear property prices will increase further. "There is a fear that prices may go up in future," said Kumar Gera, chairman, Confederation of Real Estate Developers' Associations of India. He said the feeling among investors is "when I can afford it, let me buy the house." "So a hike in policy rates will not have any mindboggling significant impact on demand," said Gera.

Demand will not be hurt by RBI's rate hikes in the immediate future because banks may not follow on with increases in their home loan interest rates, developers said. "We are not too sure if banks will follow RBI immediately (and raise their rates)," said S Baaskaran, chief financial officer, Sobha Developers, noting that last month, several banks had raised home loan rates by 25-50 bps.

"Even if there is a rate hike, there will not be a big impact. Sentiments have improved. Demand is strong," he said. This month, Housing Development Finance Corp, India's largest mortgage lender, increased its benchmark rate for housing loans by 50 bps. "I feel that there will be no further enhancement of rates. If at all it is there, it will be moderate," said Pradeep Jain, chairman, Parsvnath Developers. Jain said the "finance minister has promised entrepreneurs that there will be no further increase in cost of funds." Banks, too, have ruled out further increases in the short term. "I don't think there will be any further increase (in lending rates) because most of the banks have increased their prime lending rates," said State Bank of India chairman OP Bhatt late August.

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