High Interest Rate on Loans: Builders in trouble
Escalating realty prices is the last thing a potential buyer would have in his/her mind, and the present times talks about it in detail. Developers are not raking in the moolah now and are displeased with the present market scenario. Taking loan from money-lenders at high interest rates in order to help their project cross the finishing line, has been a real back-breaker for the developers.
Private money-lenders have again gained momentum in the market and are quite popular among small and mid-size realty developers. Lenders now offer funds at short term interest of 42% for a full year to developers to finish their projects.
Market Insight
The stress among realty developers is growing by leaps and bounds and it is evident from the drop in the sales figures and stringent bank rules that prevent money lending to the sector. As such, developers are thrown open to liquidity crunch that eventually lead to low sales price. This induces a common fear- could this trigger the downward spiral in property rates?
According to property consultants and housing indexes, around 22 out of 26 cities have witnessed a marginal decline of rates of residential units in the second quarter. Market research confirms that an unsold inventory of 6 lakh apartments in the nation have further put burden on the realty developers. Shooting money at high rates, however, may ward off the difficult situation, according to few developers, and keep the price stable till the economy regains its position.
Report from other sources confirm that interest rates depend on the type of builder. For an A-grade builder, the interest rate goes up by 2% every month while for a B-grade it can mount up to 4%. Money lenders keep the property documents in custody or make sure that some ownership is transferred in their name.
Cash Crunch for Developers
The realty market at present is very tight. This is evident from the fact that getting 30 crore from PE funds and banks is a hard nut to crack for small developers. This makes it an ideal time for money lenders to step in. Lack of money often compels a developer to discontinue with construction and that leads to non-payment of installment from the buyers. This is where money lenders come to the rescue.
However, availing the services of a money lender calls for more problem for a developer since they charge steeply. Although some prime developers find it easy to bear the additional charge, small builders, however, go for a toss due to the additional burden by money lenders.
Builder in the country, at present, are displeased with the status quo of the real estate market. Private banks do not offer loans to some builders, and as a result selling of few flats or taking loans at high interest is the only choice left. This is the only option left for builders to meet the ever-growing needs of the buyers.
