The Real estate sector in India is going through a tough time. The interest rates are going upward for individual home loans as well as for developer’s loan. Cost of land has increased manifold in and around the big cities. Government restrictions on land transaction further aggravated the situation. The intended purchasers of land and buildings are shying away or postponing their purchase due to the high cost of interest burden. The availability of construction materials such as sand, bricks, iron and cement and its cost thereof are an added curse to this sector.
Many the Real estate developers in India are of the opinion that the real estate sector will be affected adversely if lending rates of Banks for home loans and loan to developers do not bring down to a moderate level. In domestic real estate sector the main factor affecting progress is interest rate structure and not the impact of financial crisis of US. RBI has hiked the key policy rates by 11 times since March 2010 to control inflation. Banks have been forced to increase the lending rates sharply on home loan as well as loan to developers. Real estate sector is going to suffer a lot if interest rates are not regulated and brought down to a reasonable level by keeping special interest on it. Interest rate has to come down to a comfortable level for growth of this sector. Since rate of inflation is going upward the focus of RBI is to contain inflation but the measures taken by them is not suitable for growth of real estate business and hampers further development of this sector.
The higher rate of interest is not only emptying the pockets of individuals but also hitting auto and real estate sectors. In these sectors the demand for product and services are directly linked with the cost of funds. You cannot rule out the chance of RBI increasing the rate again in near future as the inflation is moving close to touch double digit. However, the decision by the US Federal to keep their rate near to zero and the likelihood of controlled slow down, RBI may elect to slow down the rate hike. Banks which are lending at 8 percent in the interbank market are ready to invest their funds in 10 year bonds at a rate of 8.20 percent. It indicates that Banks anticipate a slowdown in the long run. But you can notice that banks are not increasing their long term deposit rates with the same measure as short term rates as they are not sure about the demand for loans.
The ‘CREDAI’- the apex association of realtor body, has stated with concern that purchase of private land should not be covered under the proposed land acquisition bill. Otherwise the prices of houses would rise sharply and the development of township would become difficult. According to the Draft of National Land Acquisition and Rehabilitation and Resettlement Bill, 2011 posted on the website of the Ministry of Rural Development, the provisions of rehabilitation and resettlement will apply only when private firms buy land equal to or more than 100 acres on their own and if they approach the government for partial acquisition for public purpose.
The association is of the opinion that the provisions of rehabilitation and resettlement to land owners for private land transactions are unwarranted and should not be insisted upon. It is argued that the proposed bill is against urbanization and detrimental to the development of townships. It is further stated that transaction of private land takes place on mutual consent at a fair market price and should not be covered under the proposed Act, as the coverage of this type of transaction will end up in prices of houses go up manifold.
