Recently, HDFC hinted of a hike in its home loan rates. With inflation concerns escalating, interest rates are hardening and the burden is being passed on to the consumers through hikes in lending rates by banks as they are finding it difficult to maintain their margins due to rising cost of funds. This development could spell further trouble for consumers and their finances. According to GP Savlani, resident director, CREDAI. “When interest rates go up it becomes costlier for the consumers to buy houses as he has to pay more for the same house. So, we can expect some resistance from the consumers as home loan rates move up. “Even for existing consumers who have already managed to fetch a house for themselves these rate hikes are going to trouble them as higher Equated Monthly Installments (EMIs.) Now consumers have to dig deeper into their pockets in order to services their housing debts.

Well, if one takes a look at the real dearth of potential. First of all, the sector is expected to grow from US$ 14 billion at present to a staggering US$ 102 billion in just five years from now. Secondly, the government has allowed a 100 percent FDI approval in construction and infrastructure projects at the beginning of the year which is yet to be exploited by the sector. The opening up of the sector has already attracted many international companies. Finally, the sector is experiencing a construction boom especially in the tier-1 and tier-11 cities. Even through big cities approach saturation, the small cities will be vibrant enough to keep the party moving.

But these rate hikes might spoil the party to some extent. For the housing sector these developments might prove debilitating as a demand slowdown in the sector might forestall activity in the sector. A slump in demand might also discourage investments in the sector seriously hindering growth of the realty sector as a whole. According to Savlani, “Definitely the sector is going to be affected by rate hikes. Hike in home loan rates will bring down the demand for housing to some extent and it can lead to a slowdown in the realty sector by adversely affecting investments in the sector.

These are definitely not interesting times for the sector and the consumer as well, it would be hard and stressing for the consumers and their wallets also. But everyone has to agree to the fact that we are now exiting an era of cheapo money which was cherishe3d by all for quite a long time. Well, its payback time now!