RBI’s Decision may hit Real Estate Companies

January 30, 2008	(1 votes, average: 5 out of 5)  Loading ...
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The Reserve Bank of India’s (RBI) decision not to cut interest rates has spooked real estate companies facing the brunt of a housing industry slowdown caused by the high cost of mortgage financing. RBI, on Tuesday, decided to keep interest rates unchanged in its third-quarter monetary policy review. Real estate companies were expecting a cut, especially in the backdrop of slowing home sales in major cities in the past few months.

Buyer resistance and a series of interest rates hikes last year put the brakes on home sales last year. Middle-class households put off purchases after seeing prices break all records in most major metros. ET’s report, on Tuesday, cited RBI data to show that home loan sales fell 39% in April-November 2007 while loans to developers eased by a fourth to Rs 12,563 crore.

Real estate shares fell after the policy. Lower rates help the real estate industry by spurring consumers into buying houses. Realty stocks like DLF, Puravankara Projects, Indiabulls Real Estate fell marginally at about 1%. The hardest hit were companies such as Unitech, HDIL and Omaxe whose shares fell down 5.59%, 5.47% and 2.12% respectively. Sobha Developers on the other hand, closed at Rs 772.75, up 2.02% from the previous close.

Jones Lang Lasalle Meghraj, chairman & country head, Anuj Puri said as the rate remain stagnant, high levels in interest rates will continue and the impact will be felt mostly in the residential sector. This may also force developers in some areas to sell their products at lower rates.

“Because of the subprime crisis in the US, US Fed (the Federal Open Market Committee) reduced the interest rates by 75 basis points. This naturally has created a wide gap between US and Indian interest rates, leading to arbitrage opportunities in the economy. US investors not only get the currency appreciation returns, but also higher interest income,” he said.

He added that if it happens, there will be substantial addition to liquidity in the Indian economy. This may in turn fuel further currency appreciation, hurting exports. Thus, this was a strong case in favour of curtailing interest rates.

Source: http://economictimes.indiatimes.com

News Published Under:   Real Estate India, Banking and Finance, Home Loans |

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