Interest Rate Hike May Hit Realty Sector

With growing inflation and interest rates leading to a slackening in property demand, 1% to 1.5% increase in interest rates could further impact the real estate sector.Jones lang LaSalle Meghraj Chairman and Country Head Anuj Puri said, “The demand is already slackening. The real estate sector can absorb another 100 to 150 basis points rise in interest rates, but anything beyond that will hit the industry hard”.

Further he said that the current trend of drop in demand would continue for about two years as there is no sign of inflation cooling down and high chance of interest rates becoming harder.

Mr. Puri, however, said that there was no shortage of demand in Mumbai and Delhi, but in other parts of the country far less number of property transactions are taking place. The slackening in demand, coupled with liquidity crunch, could lead to consolidation in the realty sector as smaller players will find it difficult to survive.

He said, “Smaller players will have to partner with bigger ones or offer stakes to financial partners to complete their projects”.

Further he added that there is no scarcity of demand for office space in the country as overseas companies are now leaning more towards India for outsourcing. As a result, even smaller cities are becoming an attractive destination.

One Comment

  1. Posted July 8, 2008 at 12:13 am | Permalink

    Increased rate of interest defiantly hit the real estate sector.
    The direct effect of higher interest rates will be shown on property prices

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