The latest interest rate hike by the Reserve Bank of India (RBI) is bound to push up the price of housing loans as well as the residential apartments as real estate developers on Tuesday said they will pass on the increase in cost of funds to consumers.
“RBI has put us in a sorry situation. It is a vicious circle of higher input cost, higher borrowing cost and higher property prices. We are bound to pass on the increased cost of funds to our customers,’’ Confederation of Real Estate Developers' Association of India (CREDAI) chairman, Pradeep Jain said.
Mr. Jain said the rate hike will further tighten the source of funding required for running the business. However, he said increase in interest rate is unlikely to impact demand as there is a shortage of housing in the country. “We urge RBI not to hike rates any further as that will certainly choke industrial output, thereby putting a halt to economic growth,’’ Mr. Jain, who is also the Chairman of Parsvnath Developers, said.
Expressing similar sentiments, CREDAI national president Lalit Kumar Jain said the frequent rate hikes will prove to be counterproductive since the move will have a cost-push impact rather than proving to be an inflation control measure. The rates of interest are bound to zoom and this will further weaken the sluggish demand in real estate sector. “There is an urgent need on behalf of the government to take immediate steps to initiate reforms in real estate like transparency and single window clearance system,’’ he added.
Cabinet approves subsidy
Meanwhile, the government raised the housing loan ceiling for availing one per cent interest subsidy to Rs. 15 lakh from existing Rs. 10 lakh, a decision that will benefit borrowers by up to Rs. 14,865 per annum. The proposal was approved by the Union Cabinet.
Under a scheme introduced in 2009, home loan borrowers are getting one per cent interest subsidy on home loans of up to Rs. 10 lakh, provided the cost of the house did not exceed Rs. 20 lakh. “A budgetary provision of Rs. 500 crore has been made for the financial year 2011-12 for implementing the scheme,’’ Minister of State for Information and Broadcasting, Ambika Soni told reporters after the Cabinet meeting.
With the increase in housing loan ceiling, the limit of subsidy for an individual borrower would go up to Rs. 14,865 per year for a loan of Rs. 15 lakh on reducing balance basis from the present limit of Rs. 9,910 for a loan of Rs 10 lakh, Ms. Soni said.
The government has designated the National Housing Bank as the nodal agency for implementing the scheme both for scheduled commercial banks and housing finance companies, she added.
