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adProperty News

Home loan borrowers can relax
Source : The Hindu Published On : 2010-05-01 City : Chennai

There has been much speculation on interest rates, prior to the announcement of the credit policy by the Reserve Bank of India on April 20.

While the increase in the repo and the reverse repo rates and the cash reserve ratio were on expected lines, what came as a pleasant surprise, or what should keep borrowers happy, is the status quo on the lending rate front? Most banks have indicated that the borrowing rate will not see a sharp swing in the near term owing to the comfortable liquidity position.

On the face of it, the trend might push the central bank to usher in another round of rate hike as has been debated by many analysts.

From the property investor point of view, influence of interest rate on property investment is increasingly becoming irrelevant as there are clear signs of economic recovery. Not only are companies doling out double-digit pay hikes, the investor also is once again shopping across different assets.

In the case of property, the media is full of reports of builders once again launching premium apartments due to the return of investor appetite. If industry reports are any indication, there has not been a significant downtrend in the construction activity either, thanks to the support given by the government to the infrastructure, through the stimulus package.

For those sitting on the sidelines regarding their property investment, it is time to make a fresh move as interest rate hikes may not pinch significantly.

Also, the recovery in the economic mood only indicates that we may not see a significant correction in prices. While certain pockets are likely to see muted activity, the larger picture for the (property) sector looks promising.

This was also reflected in the recent uptrend in the stock prices of real estate company stocks, particularly after the announcement of the credit policy. The story of a turnaround will get strengthened once the performance results for 2009-10 are out from more number of companies.

Besides the turnaround in the buyer’s mood, what will also help the industry is the fact that many companies have restructured their balance with borrowing programmes. If Unitech has gone in for organisational restructuring, many mid-sized companies issued less-expensive preference shares and debentures to mop up funds, which improved the liquidity.

Though the support from institutions such as banks continues to be tough for most players, other investors such as high-net-worth individuals, portfolio management service providers and mutual funds have filled the gap. Also, a number of companies are understood to be readying them for IPO Initial Public Offering to ride on the good stock market trend.

A healthy real estate market will mean more action, and with public memory being short, it would not be surprising if we come across another boom in the medium term. However, the biggest dampener for speculators or multiple property owners is the sluggishness on the rental income front.

As many landlords would have noticed, finding an ideal tenant is proving to be a daunting task and thanks to the wide choice, the tenant has begun to call the shots.

That will also mean that property owners will have to taper down their return expectation, with the Indian economy taking a step closer towards calling itself a matured one.



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