Lending rates have risen. Home loans are costlier. And banks have been told to tighten their purse strings. Is it time for the great real estate boom to slow down?

Ask realtors, and they’d say that’s how a negative mind works.

Even if the worry lines on their forehead have deepened a shade, these men who have changed the cityscape don’t appear too bothered.

Financial institutions also think the same way. They are quietly confident that neither the consumer nor the market as a whole will be affected.

“The impact will be quite minimal, and the market is capable of absorbing the increase in rates and the corresponding rise in costs as well,” says ICICI Bank’s deputy managing director Chandra Kochar.

“The increased rates,” Kochar points out, “are still quite low as compared to what they were six or seven years ago. It has to be remembered that affordability among consumers has gone up as well and a large number of families have double income today. Therefore, there should not be much reason for worry.”

Real estate sources think the rise in salary across all sectors will act as a buffer between the increase in lending rates and affordability.

“On an average, salaries have gone up by 10 to 15 per cent across the board over the past few years. Some sectors have witnessed exponential growth, where salaries have risen to the tune of almost 25 per cent. For example, the information technology sector has been a major growth driver,” says Nazeeb Arif, the secretary-general of the Indian Chamber of Commerce.

D.K. Chaudhuri, of Skytech Solutions, agrees.

Consumers, the Skytech chief executive officer feels, would manage quite comfortably, though it would require some juggling.

Arif, however, adds a word of caution. If the interest rates go up further, he says, investors might shy away from putting money in real estate and switch to other options like mutual funds and commodities such as gold.

What has further stirred the property pot is the set of guidelines the Reserve Bank laid down this March on lending money to realtors. It has asked all banks and other financial institutions to tighten their belts while approving loans for buying land.

According to the guidelines, banks can only lend money to developers who have the necessary approvals for a project from the state and local authorities. But then, real estate sources point out, the approval can come only after they acquire the land. Which, in effect, means banks have been barred from loaning money to realtors for buying land.

The sources say the real reason behind the RBI’s guidelines is to prevent over-exposure to a particular sector. The central banking authority has been repeatedly cautioning all financial institutions against over-aggressiveness in giving real estate loans.

Industry insiders are, however, not too perturbed and say that realtors can raise sufficient funds from the capital market.

“There are a large number of real estate mutual funds that are being created for the sector and, therefore, liquidity should not be a problem,” says Pradip Chopra, the Bengal secretary of apex real estate body Credai.

“The Securities and Exchange Board of India has already cleared a number of them, and, in fact, the finance ministry, too, has asked Sebi to clear more of these funds. With foreign direct investment coming in as well for the real estate industry, there should not be much to worry about for realtors.”

Moreover, banks, he points out, have not been asked to stop funding construction, just that they’d have to be more careful while lending money for acquisition of land.

Chopra also says interest rates in India are “higher” than those prevailing in global markets. “They are bound to stabilise soon and be on a par with what is acceptable elsewhere,” he emphasises. “Our guess is that in a year or two, we should see that happen and the market will assume a much more organised look.”