Hike of over 2 pc in home-loan rates to affect realty sector

MUMBAI: Any hike of over 2 per cent in home-loan interest rates would have an adverse impact on the real estate sector, expert said.

"A 0.50 per cent hike in interest may make an emotional impact on buyers. But if it goes to a level of 2-2.5 per cent, then it would definitely affect the sector," real estate money management and services firm, Jones Lang LaSalle Meghraj's (JLLM) Chairman & Country Head, Anuj Puri, told PTI here.

Rising inflation is a worry as it would set the stage for further monetary tightening by regulators. But, hopefully, the revised income tax norms will negate the negative impact in the long-term, he said.

"While interest rates do have an effect on residential real estate sales, the fact is that the newly-revised income tax norms will negate any negative impact in the long-term," Puri said.

"In the last budget, Finance Minister assured that the Direct Tax Code, which will be introduced in the next fiscal, will bring more money into the taxpayers' pocket. This will help buyers to overcome the interest rate-hike," he said.

Considering the need for low-cost homes in India, the demand for affordable housing will sustain for decades to come, he said.

"The shortfall in this segment, at this point in time, is still in the range of millions, and India's ever-growing rate of urbanisation will act as a constant demand catalyst.

However, both affordable and mid-income housing will continue on parallel paths, since they represent two entirely different and equally valid business propositions to developers," Puri said.