Monthly Archives: May 2011

Risk Factor Increases in Investing in Real Estate

The first quarter of this fiscal would be a difficult one for the real estate sector. Many of the big players in metropolitan cities have had to borrow funds to pay their installments on loans due to banks by the end of March 2011. In smaller cities and towns, the situation is not any better. Realtors who had overerated actual end user demand for housing, and had received advances from pioneers and investors are coming under pressure to deliver promised projects to enable them to cash in on their investments.

Projects are not moving ahead because of lack of cash, and banks are not falling over themselves to lend money to the sector any longer – especially as the RBI has restricted such flows and had asked banks to be cautious of offering out too much money to real estate companies. What does all this mean and how are these indications going to affect the person who wants to invest in real estate?  Firstly, potential investors should be very, very careful of where they invest in. In the absence of a real estate regulatory body in place the old statement of requirement , or buyers beware is more relevant today than ever before. Developers are facing a double setback this year.

Even if their projects come up, the support of foundations and substructures promised by government agencies such as power, water , sewage, and above all, road and transport connectivity – is just not happening on time, so projects may be finished, painted and polished, but may not be livable . The high cost of borrowing money is also hitting developers and with banks becoming cautious of extending credit to the sector, many developers are now looking towards private equity and similar sources of finance, many of which are much more expensive than bank funds. Apart from expenses, many financiers are also more wary about the money they lend.

SBI Hikes Lending Rate by 75bps

Country’s largest lender State Bank of India has declared a hike in loan interest rates by 75 basis points (bps), making housing, auto and other loans dearer for both new and existing debtors. State-owned SBI has increased the base rate, or the minimum lending rate, by 0.75 % to 9.25%. The new rate is effective from 12 May 2011, the Banker said.

The increase in State Bank of India’s loan rates comes a week after the Reserve Bank of India raised its lending and borrowing rates by 50 basis points. SBI has also increased its standard prime lending rate by 75 bps which would mean that existing borrowers will also have to pay more for their loans. With this, BPLR goes up to 14 %.

State Bank of India has also elevated deposit rates by up to 225 bps on selected 04 maturities. Many banks have been on a rate increment spree since the RBI’s decision to raise short-term key rates in its annual credit policy on 03 May 2011. Over a dozen banks, including PNB, ICICI Bank, Oriental Bank of Commerce and Corporation Bank, have raised interest rates in past one week.