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Costlier loans see flat sales dip 20-25%

Expensive loans to decrease flat rates

Apnaloan.com Research Bureau

10 Aug 2007

Mumbai: Rising interest rates are finally beginning to slow down the real estate business in Mumbai. There is no clear consensus on the extent of the impact, but developers have recorded a progressive drop of 20-25% in the sales of residential apartments over the past two to three months.

"If builders were selling 100 flats a month earlier, the figure has now come down to about 80 on an average," a property consultant told TOI. According to some, those who were planning to buy high-end properties seem to have deferred their decision. "But soon, with EMIs increasing, the middle- and lower-level segments too will be affected," said J S Augustine, corporate advisor, Acme Group.

The downward trend began in January when banks began hiking their interest rates, and since then, bookings have continued to drop with every rate hike announced. Most buyers are putting off their decisions in the hope that rates will decline, say, after six months.

But some builders say the drop could also be partly attributed to the fact that this is traditionally a slack season. Mulund-based builder Dharmash Jain said, "Traditionally, sales are sluggish in the February-March period because of the school and college examinations. April will be the month to watch out for when sales generally pick up."

But there is a fear that persistent rate hikes have already reduced options for middle-class buyers looking for a house in Mumbai or its outskirts. With every percentage point increase, equated monthly instalments are bound to rise and thus reduce the ability of a potential loan-seeker to repay a huge loan.

What's worse, even existing loan account holders are finding it tough to hang on as EMIs threaten to upset their monthly budgets. "I have clients who have been forced to cut down their expenses and investments because their EMI has gone up considerably in the last one year," said a financial advisor.

(Courtesy: TOI)