Real estate companies in South India are hopeful of registering sound volume growth in the residential properties segment despite recent rate hikes by the Reserve Bank of India as banks hold home loan rates in their bids to improve the advances growth.
Also, unlike other geographies like National Capital Region (NCR) and Mumbai, price hike is not sharp in South Indian market providing leeway to home buyers.
“The impact of policy rate hike by the central bank is not much in South Indian market as property prices have not risen sharply as in Mumbai and NCR market.
So, prices are in the affordable zone to attract customers and the demand is robust in the residential segment,” Venkat K Narayana, chief financial officer of Prestige Developers, said.
The central bank has recently hiked repo (rate at which banks borrow from RBI) and reverse repo rate (rates at which RBI borrows from banks) by 25 basis points. The central bank has also come up with additional guidelines tightening real estate norms.
As per the revised guidelines, as the ceiling for loan-to-value (LTV) ratio was fixed at 80 per cent, the banks can’t lend to a customer more than 80 per cent of the value of the property. The central bank has also directed financial institutions to increase risk weights of home loans above Rs75 lakh. Further, the bank has been asked to increase standard asset provisioning to two per cent in case of teaser home loan rates.
“Despite the loan-to-value fixed at 80 per cent, the demand will remain robust as usually home buyers put 20-25 per cent of their own money to buy a property,” Narayana added.
Prestige Developers, which has a significant presence in Bangalore, Chennai and other South Indian cities, is planning to launch five to six projects totaling 10 million sq ft in Bangalore and Chennai by end of this fiscal.
Referring to this issue, S Baaskaran, chief financial officer of Sobha Developers, said, “Despite policy rate hikes and tightening of real estate lending norms, demand in residential segment is robust in Bangalore market.”
Most of the banks are holding home loan rates than passing it to the consumer, which in effect giving consumers the old rates, he added.
Sobha Developers, which has already sold around 1.5 million sq ft by the end of September, is planning to sell another 1.5 million sq ft by end of this fiscal. The company is also planning to launch two new projects in Bangalore and one project in Thrissur of Kerala by end of this fiscal.
Some of the other real estate developers also echoed similar sentiment.
“Bangalore has absorbed around 34,000 units in the first half of this fiscal with a price of around Rs3,000 per sq ft. The outlook for volume growth is also positive as overall revival in economic activity has ensured robust demand despite rate hike in the recent time,” N L Vaidyanathan, executive director of Nitesh Estates said.
Prices in South Indian market, which had witnessed 10-15 per cent rise in recent time, should not go further, he added.
Nitesh Estates, which had already launched five projects post listing, will launch 3 projects in Bangalore along with one project in Goa.
About the impact of rate hikes in residential market, Jackbastian K Nazareth, chief operating officer of Puravankara projects said, “There is minimal impact of rate hike on real demand. Rather, it is sentimental.”
He also said that as South India was a conservative market as compared to other parts of the country, the prices were in the affordable range.
Not only the real estate developers are positive about overall demand scenario, bankers are also of the opinion that there are less chances of passing on higher rates to consumer at this point of time.
“Despite the rate hike by RBI, most of the banks have not raised rates. This trend is expected to continue till end of this year,” Dillip Mavinkurve, managing director of State Bank of Mysore said.
He also said that floating rate schemes announced by most of the private and public sector lender were expected to continue in near future to push up advances growth which other wise was witnessing a slow growth.