Growing real estate prices are resulting in a decline in the demand for home loans. The rising interest rate is a additional factor.
Even though Indian realty market is observing a compounding growth, owning a home is still a tough dream for a lot of middle class Indians. Previously (2002-2006), the trouble-free availability of home loans was accelerating the realty growth drive. But, there is now considerable decline in the demand for home loans in India. Main banks have blamed the rising property rates as a cause for this cut. According to the current survey, the prices of furnished and semi-furnished houses in the metros and upcoming metros are becoming sky scrapping day by day.
The increasing real estate prices are not the only factor for this decline. However, the decline has been attributed further to the home loan interest rates that have been increasing incessantly for the earlier couple of months. As per the current details of Associated Chambers of Commerce (ASSOCHAM), rise in these loan rates severely affect the housing sector.
The growth of this sector has droped to 26.6 percent in 2006-07 from 29.1 per cent in 2005-06. The interest rates on home loans rose from 7 percent in 2002 to 12-14 per cent in 2007. This rate has made both lending and borrowing largely unaffordable.