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RBI makes it a dark Diwali for home buyers

Jharna Mazumdar, Mumbai, Financial Chronicle

October 25, 2011

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Amrita Bhattacharya, a 35-year-old Mumbaikar, a partner at recruitment firm Addus Services, had been deferring her plans of buying a house due to high interest rates and equally high property prices. This Diwali though, she was planning to book a flat but with the present economic uncertainties and several rounds of rate hikes she has deferred her plans.

“I hope the rate hikes keep investors away from the property market, thus, resulting in some correction in prices. Although, there are many festive offers, prices have not yet corrected to the extent they should have,” said Bhattacharya.

It’s customers like her who have real estate developers fearing a further impact on demand. With Tuesday’s hike, the 8.5 per cent interest rate at which the RBI lends to banks, is now equivalent to the coupon rate of a 10-year PFC infrastructure bond open for subscription in the IPO market.

Rajeev Talwar, group ED, DLF told Financial Chronicle, “With another round of rate hike by the RBI, new home buyers will find it difficult to buy a property.” Talwar added that while end-user demand continues to be strong and the festive season response was good, he is uncertain about future demand.

Anil Kothuri, CEO, Edelweiss Housing Finance said the latest increase of 25 bps in policy rates will be mirrored by a commensurate increase in lending rates. According to him, equated monthly instalments for borrowers have risen by 24 per cent over the past one year. “The implementation of the recommendations of the Damodaran Committee is good news for borrowers since they will no longer need to pay a penalty on prepaying home loans,” he said.
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