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Home loan interest rates: Real estate sector set to consolidate

Indian realty industry set to consolidate.

Apnaloan.com Research Bureau

10 Aug 2007

Indian real estate sector, the growth of which has been constrained by rising interest rates and falling inflow of funds, is now set to consolidate, industry experts feel.

"For big developers there is no impact of rising interest rate but small players are finding it difficult to raise money for their proposed projects. They would need to sell their projects to big developers," said, Ansal API Vice-President (Marketing) Kunal Banerjee, was quoted in a Business Standard article. Distress sale of projects is already happening, he said, adding the industry would witness more of it in days to come.

Seeking to check excessive capital inflows in real estate sector, the government last month decided to bar developers from raising money abroad to develop integrated townships.

Though tightening of External Commercial Borrowing (ECB) norms was related to only integrated townships, the spill-over effect is felt across the sector.

Besides, RBI has raised risk weights on housing loans, followed by interest rate hikes to curb demand in the sector.

Edelweiss Capital Senior Vice-President George Mathew was also quoted as saying that RBI is squeezing all sources of funds gradually to rein in inflation and a possible correction in this sector could be in the offing.

"Higher funding cost is expected to reduce attractiveness of real estate projects, reduce the land banking run and bring prices down," he said, adding debt financing is not available for land acquisition.


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