Home sector to be affected if home loan rates increase by over 2%

By BankBazaar.com | April 19, 2010

The forthcoming monetary policy is expected to lead to an increase in interest rates by the banking industry. Home loan rates are very likely to increase post this credit policy review. Experts claim that if home loan rates increase by over 2% then the housing sector is expected to be badly affected.

Anuj Puri, ones Lang LaSalle Meghraj’s (JLLM) Chairman & Country Head said, “A 0.50 per cent hike in interest may make an emotional impact on buyers. But if it goes to a level of 2-2.5 per cent, then it would definitely affect the sector”.

The policy tightening steps by the RBI are meant to control rising inflation rates in the country. SBI has already implied an increase in interest rates after the credit policy review. As SBI is regarded the leading lender of home loans, an increase in rates by SBI is expected to damage the realty sector.

But Puri says that the altered income tax norms would aid in tempering the negative effect in long term.

He said, “While interest rates do have an effect on residential real estate sales, the fact is that the newly-revised income tax norms will negate any negative impact in the long-term. In the last budget, Finance Minister assured that the Direct Tax Code, which will be introduced in the next fiscal, will bring more money into the taxpayers’ pocket. This will help buyers to overcome the interest rate-hike”.

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