4 reasons why the Real Estate sector is likely to be hit hard

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It's one bad news after the other for India's real estate sector which is already grappling with low demand on account of economic slowdown. The sector playing a crucial role in the overall development and growth of the economy is expected to be hit hard on account of several factors listed here-forth.

Land acquisition bill to make property prices costly

According to industry experts, the Land Acquisition Bill is likely to increase the land costs for developers, who are likely to pass them on to consumers.

With demand sagging, it is likely to aggravate worries for the sector.

RBI's scrapping of innovative housing finance scheme to weaken property sale

RBI has mandated home loan disbursement by banks to be tied to the construction stage of the property and no upfront payment to be made to developers. The mandate would prove to be a severe blow to the innovative 80:20 or 75:25 housing finance schemes as developers would no longer be able to raise housing loans on behalf of individual borrowers for incomplete/ under-construction/green field housing projects. Another hit for the sector.

Hike in home loan rates by banks to impact demand in the sector

Interest rates are rising as the RBI tightens liquidity to defend the rupee. HDFC has hiked interest rates from 10.15% to 10.40%. Joining the league, LIC Housing Finance company also increased home loan rates by 35 basis points. So, on an average commercial banks and housing finance companies have hiked interest rates on home loans by 20-30 basis points which though implies additional burden for home loan borrowers.

High input cost to render some of the infrastructure and housing projects inviable

Real estate sector confronting issues of rise in input cost would eventually pass on the increasing cost to end-users or property purchasers. In some cases, this rise in input cost is likely to render some infrastructure projects non-viable.

Story first published: Thursday, September 5, 2013, 10:43 [IST]
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