DLF: high rates affecting real estate demand

NEW DELHI (Reuters) - Tight monetary policy and subsequent high mortgage rates have affected Indian real estate demand temporarily, the head of India's most valuable property developer, DLF Ltd, said on Tuesday.

K.P. Singh said that house prices would only begin to fall in a fast-growing economy with a significant increase in supply.

"Real estate prices can come down only by increasing supply and not mere monetary policy," he told reporters at a conference.

The central bank raised interest rates five times between mid-2006 and March, and has also lifted banks' reserve requirements to rein in inflation and credit growth.

This prompted commercial banks to raise lending rates including those on home loans by more than 200 basis points.

"Because of high mortgage rates and monetary policy, real estate market is subdued temporarily," Singh said.

"Growth in home loans may slow to 17-20 percent in the financial year 2007/08," the Associated Chambers of Commerce and Industry said in a report released on Tuesday.

Mortgage loans grew by 26.6 percent in 2006/07, lower than 29.1 percent in 2005/06, the report said.

"Sale of residential property dropped by over 70 percent in May-June 2007," it added.

Singh said the middle-class had been worst hit by the recent rate rises, but commercial rentals were expanding and there had been no decline in prices of "high-end" housing units.