High interest rates pulling down property prices: ASSOCHAM

NEW DELHI: Residential sector in India has witnessed a slowdown following a spurt in property prices and spiralling interest rates on home loans by about five per cent in last four years, an ASSOCHAM study said.

"With the repricing of interest rates in the last four years from 7 per cent to 12 per cent and the sky rocketing prices of the property, there has been a slowdown in the residential property market," it said in a paper on Realty Check.

Expressing concern over increasing role of speculators in the real estate sector, ASSOCHAM said: "It is necessary to check the flow of speculative money."

Commenting on the home loan GDP ratio, ASSOCHAM said this ratio is stagnated between five to six per cent in the country as 90 per cent Indian borrowers are first timers, while in the US and UK the ratio was as high as 50 per cent.

High interest rates coupled with soaring property prices have only impacted the affordability of buyers, demand, however, continues to persist and would become stronger and more intense in near future, ASSOCHAM President Sajjan Jindal said.

India has a shortage of about 19.4 million housing units of which 6.7 million is estimated for urban India. It is estimated that additional 45 million units would be required for both rural and urban areas by 2012, it said.

"All these estimates work out to make a strong case for higher home loan GDP ratio so that India and its population is able to keep a pace for meeting the demand for housing units," Jindal said.

The study said the share of housing loans in total personal loans have increased from 37.2 per cent in 2001-02 to over 51 per cent in 2006-07. Home loans constituted 54 per cent in the total household credit in the year ended March, 2007.