Hike in home loan rates to hit hard

With most banks increasing home loan rates, property consultants say that lower middle class will be dissuaded from taking a loan and will shift to rental accommodation.

The amount of loans being disbursed to the lower middle income group will come down.

"Even as the immediate impact of the interest hike will not be palpable but it will impact the lower middle class. There will be bias towards rental accomodation. Out of every five families in the segment, nearly four families will now opt for rents and will postpone their buying plans," Harsh Roongta, MD of Apnaloan.com said.

"Falling interest rates had attracted about 25 per cent of the lower middle class segment in last one year but this year it will reduce," he added.

Such a shift is already visible as property dealers in several B and C grade parts of Delhi have seen a dip in registration even during the festival season.

"We were anticipating sales of about 40-45 flats and some smaller plots in parts of Dwarka and Palam. But, the registration in last three weeks has been much lower," Devesh Sinha, a property dealer in Dwarka said.

Also, parts of West Delhi is seeing a slow down in registration following the announcement of interest rate hike.

"The lower income group which normally buys flats in the range of Rs 7-10 lakh will feel the pinch of rate hike. Many people were buying property as the rents were equivalent to the equated monthly installments that they were paying. But, with an increase they would look at postponing property acquisitions till the rates settle down. This could also slow down the development of some of the Western and Norther parts of Delhi," an India Property Research official said.

However, the property developers do not see a change in demand.

"The response of customers are still bouyant and their is no sudden panic. For a 15 year loan at 7.5 per cent, the EMI per lakh stands at Rs 930 and a 0.25 per cent increase would be a hike of Rs 14 only. So, when people are making a one time investment on property, they will not be dissuade by the interest rate hike," Pankaj Pal, marketing head at Vatika Group said.

ICICI Bank has already raised interest rate on loans by 0.50-0.75 per cent while HDFC has increased rates of floating rates by 50 basis points.

LIC Housing Finance and foreign banks like Citibank have also indicated hike in interest rates by 25-50 basis points after evaluating the trend.