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Reserve Bank of India (RBI) today made couple of announcements which could bring some sanity to the rising real estate prices:

1. RBI mandated banks to offer loans only upto 80% of the market value of the property. Though, if the loan amount is more than Rs 75 lacs, the bank could offer upto 125% of the market value of the property. At present, this was upto 100% of the market value of the property.

2. RBI also raised key short-term lending and borrowing rates by 25 basis points.

If the banks raise home loan interest rates futher, it may have a negative impact on real estate market in the short term. RBI took these actions to tighten norms for housing loans to check asset bubble and possible defaults. Real estate stocks plunged after the news came out but it will be evident only in the coming months if the real estate prices cool down or continue to rise as is the situation now. A lot also depend on the house purchases during the festive season - if the investors stay away from the market during the festive season when the real estate market is at its boom, it may affect sentiment from a short term perspective and the prices will cool off.

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