Present downturn in real estate a temporary blip
The persistence of inflationary pressure in the market will further affect the recovery in the real estate sector. As the government measures to improve supplies of essential commodities , so far, have had limited impact on controlling prices, RBI is likely to further take harsh measures to push the interest rates up on July 29 when it review its credit policy.
Because of the central bank’s monetary measures taken so far to contain inflation, the interest rates on home loan have gone up by 2 percentage points - to over 12% in the last one year. Prior to this, the central bank, in order to contain the rise in the prices of real estate, had curtailed the flow of money to the sector. This has resulted in the rise in interest rates by over three percentage points between 2005 and 2007.
In fact, in the last three years, interest rates on home loan have increased by around 5 percentage points from around 7% in 2005 to over 12% at present. This has led to increase in the equated monthly installment (EMI) on a 20-year loan by a whopping 42%. That means, EMI on Rs one lakh loan for 20-year , increased by Rs 326 - from Rs 775 to Rs 1,101. And on a loan of Rs 50 lakh, EMI has increased by as much as Rs 16,290!
More : economictimes.indiatimes.com