Home loans might become more expensive
By Joseph Samson
Jun 24, 2008
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The after effects of the double digit inflation that India was dreading are becoming worse. If hike in lending rates wasn’t enough bad news, there is a feeling that home loan rates might also increase. With the current status of inflation, having crossed the 11% mark, it is possible that the commercial banks might increase the home loan interest rates.

Two years ago, Navin Jaiswal, a senior executive in a private company, had taken a loan of Rs 20 lakh with 8% floating interest rate and started paying EMI of Rs 19,000 per month. But now when the interest rates are closing near 11%, his EMI has gone up to Rs 22,000. The inflation has ruined the budget planning of his home and Jaiswal is apprehensive that his worst fears might come true if the home loan interest rate go up.

YB Verma, a retired assistant general manager of SBI, said, “Whenever the inflation gets out of control, the Reserve Bank of India (RBI) is supposed to pump out the liquidity from the market by increasing the bank interest rate. Today the prime landing rate (PLR) of RBI is floating between 12.75% and 13.25%. There is a strong possibility that RBI will soon raise the PLR which will push the home loan rates up."

The strongest effect of rising home loan interest rates is being felt in the real estate industry. In Jaipur, for instance, the property prices have been stable for the past one-year. However, many of the major projects in the city have been affected due to the lack of buyers during this period. “If the home loan interest rates continue to increase, then it will drive the investors out of the real estate market,” said Atma Ram Gupta, a top builder.

Commenting on the increased price of steel and cement leading to a hike in the construction cost by almost 30%, a worried Atma Ram added that now if the home loan interest rates go up, there will be serious threats to the real estate industry.

Although he declined to comment on the state of the property market in Jaipur and if it was facing a downturn, but he accepted that there was an urgent need of steps which could revitalise the real estate market in the city.

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