Interest rate hikes hit home-buyers, analysts predict more impact next yr

Shalini Nair Posted: Mon Aug 29 2011, 01:09 hrs
Mumbai: 


The frequent interest rate hikes by the central bank —11 times in the past 16 months alone — has begun to dent the loan repayment capacity of home buyers.
Analysts say the actual impact will be seen next year when the teaser rates introduced by many banks are reset.

Figures from the Debts Recovery Tribunal (DRT) show a 23 per cent rise in cases of Mumbai properties, mostly residential, seized by banks following home loan defaults, between January and July 2011 as compared to the same period last year. A total of 862 cases were filed in the period this year as against 698 last year.

The DRT figures, though not exhaustive as they don’t take into account properties that are auctioned by banks without any legal hassles, are indicative of the trend. Figures collated by online portal Foreclosure India on auctions held by banks and DRT since January 2010 show that of 32 cities across India, Mumbai’s speculative realty market has the second highest number of foreclosed properties after Bangalore. Mumbai’s figures (6,232 auctions) in this period are double that of Delhi. Most of these cases are houses outside Greater 
Mumbai in areas like Mira-Bhayander, Kalyan-Dombivli, Panvel, Virar and Ulhasnagar.  

The minimum bid price for the foreclosed homes are fixed at the distress sale value, at 10-15 per cent lower than market rates. DRT officials say many properties still find no takers due to the market conditions. It’s the same for properties auctioned by banks.  


National Housing Bank (NHB) chairman and managing RV Verma said the situation is compounded by the unaffordable housing prices in Mumbai. He said the NHB was collecting data from banks and financial institutions on their non performing assets (NPA). “Banks should prepare for an increase in defaults in payments as borrowers get burdened with the rising interest rates.”

CRISIL research head Ajay Srinivasan said a slight increase in the NPAs is expected due to hike in key interest rates, more so after March 2012 as teaser rates are reset to the floating rates in the market. “Though growth in the June 2011 quarter was only slightly lower than in the previous year, this was because most disbursements were against previously sanctioned loans.”

He said the aggregate sales volumes of 10 leading developers corroborate his assessment. Their sales volumes were 7.3 million sq ft in the June 2011 quarter vis-à-vis 9.9 million sq ft in the preceding quarter.