Rise in lending rate leads to low value property deals

Published on by 7bighagroup

The third hike in repo rates by the Reserve Bank of India since May this year is driving buyers to go for properties with lower price tag. As per figures compiled by the office of the inspector-general of registrations (IGR), 1,98,206 property registration documents were processed in April 2011 which earned the state a revenue of Rs 985.47 crore. In contrast, the office processed 2,11,388 documents in May, but the revenue dipped to Rs 781.48 crore. This drop could be attributed to decrease in spending capacity of the buyer who has been forced to pay more interest following the Reserve Bank of India’s decision to revise repo rates on May 3.

June reported slight rise in revenue collection, but it was still lower than the April figures. The IGR processed 1,86,196 property documents adding Rs 846.25 crore to the exchequer. “These figures are still being verified,” said inspector general of registration and controller of stamps S Chockalingam. “The situation is not very bad, as last year the department had set a revenue target of Rs 10,000 crore but the actual earning in financial year 2010-11 was Rs 14,099 crore. The target was achieved by December 2010 itself. The government has taken decisions to control inflation, but after a certain extent, property deals will take place,” said Chockalingam.

Satish Magar, Pune-Maharashtra president of Confederation of Real Estate Developers of India (Credai) said, “The government on one hand promotes affordable housing schemes and on the other hand increases interest on home loans. This shows the contradictory nature of the Union government’s stance. Real estate is the second largest employment generating sector, which will be hit by the decision to increase repo rate. Out of total price of a flat, some 36% amount goes as tax to the government. What purpose government and RBI are serving by increasing repo rate, which always has a negative impact on the market? How can inflation be controlled by increasing interest rates of home loans?” Magar also said that such decisions are badly affecting the middle class, which is the largest segment in the country.

According to Mukund Abhyankar, former chairman of Cosmos Cooperative Bank, “Since March 2010, the RBI is increasing repo rates regularly which has badly affected property deals. The dip in the revenue in May this year indicates how it has affected the property markets in the state.” “The increase in the repo rate has direct impact on flat buyers who are looking for flats with the size of one bedroom-hall-kitchen or two-BHK, but of a smaller size. Generally, these flats cost around Rs 50 lakh in Pune city. These are the customers, who are going to suffer a lot as their schedule of repayment will be affected. There are more customers in this category than the high-value flat category, who are anyway going to make their investments. So the rising repo rates does not have any bearing on them,” Abhyankar said.

On the implications of the decision of RBI, he said, “There is no coordination between the Union government and the RBI over measures for controlling inflation. The repo rate was increased to control the spending for which RBI withdrew money from the market. But the Union government spends thousands of crores on various subsidies and grants which ultimately enters the market and dilutes the repo rate increase decisions. There are other ways to control the inflation, but neither the RBI nor union government are implementing them for some unknown reasons.”


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Published on India Real Estate News

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