Will Home Loan rates come down ?

Pinnacle · 03-07-2008

The government has said that it was in favour of lower interest rates for home loans under Rs 20 lakh. Classified under priority sector, these loans constitute 80 percent of all home loans. Finance minister P Chidambaram said that it is for the Reserve Bank of India (RBI) and the banks to take a call on rates, while making it clear that he was in favour of softer rates for small home loans.

“I shall certainly bear in mind that there is public demand that interest rates for those who borrow up to Rs 20 lakh must be lowered,” Chidambaram said during a post-Budget interaction at industry chamber Assocham. He agreed to the view that home loan borrowers of less than Rs 20 lakh should be incentivised by lowering interest rates. “I made a number of efforts to impress upon bankers in this regard. It is a constant effort that I will have to make. But bankers and RBI will have to take a call.” Already, these loans have less risk weight than those above Rs 20 lakh and, therefore, bankers have incentives to lend to these borrowers at lower rates.

Banks including SBI, Canara Bank, Allahabad Bank and HDFC have reduced lending rates by 25-50 bps. HDFC brought it down by 25 bps to 13.75%. The largest private bank, ICICI Bank, has said that there could be softening of rates in the first quarter of the next fiscal. SBI charges 10-11.5% for loans up to Rs 20 lakh.

However, Chidambaram’s statement could mean a further softening of interest rates in the home loan segment which grew by 15% in the current fiscal. The minister left it to the RBI to balance growth with inflation.

“The RBI governor can never please everyone. It is his judgment call what should be the interest rates in order to contain inflation and promote growth,” he added. According to Chidambaram, from the government’s point of view, it is important to promote growth without stoking inflation.

Beenas64 · 03-07-2008

Dear Ram,
Housing Loan Market is currently is in a flux.On the one hand there is pressure from the Finance Ministry to reduce home loan rates.This being the pre election year any hike will be viewed unfavourably by the Ministry.

On the other hand global liquidity is drying up. With some more skeletons expected to tumble out of the cupboards of global financial majors, lending for mortgages and securitisation is literally a dirty word in International circles. True we do not have sub primes in India, yet the dirty colouration of mortgage markets will tend to stick.

Another issue is that the FM wants housing loans under 20 lakhs category to be focussed upon.
Where are the Affordable homes?
With major requirement in the real estate sector coming from the burgeoning middle income group there aren`t enough new offerings in this section.
The Government also has paid scant heed to this sector in the 2008 budget.The 80IB Tax benefits to developers also have been scrapped, post March 31, 2007.
Service Tax and VAT have been introduced into housing purchases. My accountant friends say that the servixce tax is expected to go up as per the fine prints of Budget 2008. In fact we can expect a rise in taxes after the budget is tabled in the Parliament.
Lack of transparency continues to dog the Real Estate Sector.All the big developers who have raised money thro IPOs are showing interest only to attend to the housing needs of the upper class and upper middle class.Of course with the consistent increase in raw material costs developers are also finding it easier to position themselves in luxury markets, where margins are better.
Witness the number of high end townships coming up.
What then is the fun of announcing reduction in home loans for less than 20 lakhs?
Possibly those people who opt for a 60 lakh apartment, then pay 40 lakhs from their own contribution and opt for 20 lakh loans could benefit!

With the oil prices surging and food prices going up I do not think the RBI can hold on the inflation rates.If inflation rates go up then we can expect a tightening of liquidity.And then the home loans could start going up.

From a broader perspective, land rates must fall. Since the major component of pricing, for any developer is the land cost,unless land costs come down the cost of dwelling units will not come down.If the cost of dwelling units come down then it wouldn`t matter whether the housing loan rates are 13 or 15%, at least for those people who want to buy a dwelling unit.
But then the initiative has to come from the Governemment.

In terms of appointing a Regulatory Body for Real Estate Industry.
In terms of unifying and stream lining Land Registration and other related issues across the country.
Making land speculation costly and diffcult for investors. ( For example if speculators who hold on to lands without developing for a period of three years, the Govwernment could bring in compulsory auctionong- this will free enormous amount of lands for development-the Government can further specify that at least 25% of such lands should be used for affordable housing- with 80IB benefits to the developers.)

I think looking for a permanent cure is better than just superficially treating the symptoms.
Sorry, Ram the FM `s announcement is not very impressive.

Beena

m Jayant · 5 Days Ago

Folks we need to be realistic looking at inflationary and global cues.Realty is facing bad credit crises world over.I think while we enjoy being part of global village phenomenon we should be able to evaluate the flip side too.
Jayant

03-07-2008	#1
Pinnacle Senior Member Join Date: Nov 2006 Location: Mumbai, India Posts: 278	Will Home Loan rates come down ? The government has said that it was in favour of lower interest rates for home loans under Rs 20 lakh. Classified under priority sector, these loans constitute 80 percent of all home loans. Finance minister P Chidambaram said that it is for the Reserve Bank of India (RBI) and the banks to take a call on rates, while making it clear that he was in favour of softer rates for small home loans. “I shall certainly bear in mind that there is public demand that interest rates for those who borrow up to Rs 20 lakh must be lowered,” Chidambaram said during a post-Budget interaction at industry chamber Assocham. He agreed to the view that home loan borrowers of less than Rs 20 lakh should be incentivised by lowering interest rates. “I made a number of efforts to impress upon bankers in this regard. It is a constant effort that I will have to make. But bankers and RBI will have to take a call.” Already, these loans have less risk weight than those above Rs 20 lakh and, therefore, bankers have incentives to lend to these borrowers at lower rates. Banks including SBI, Canara Bank, Allahabad Bank and HDFC have reduced lending rates by 25-50 bps. HDFC brought it down by 25 bps to 13.75%. The largest private bank, ICICI Bank, has said that there could be softening of rates in the first quarter of the next fiscal. SBI charges 10-11.5% for loans up to Rs 20 lakh. However, Chidambaram’s statement could mean a further softening of interest rates in the home loan segment which grew by 15% in the current fiscal. The minister left it to the RBI to balance growth with inflation. “The RBI governor can never please everyone. It is his judgment call what should be the interest rates in order to contain inflation and promote growth,” he added. According to Chidambaram, from the government’s point of view, it is important to promote growth without stoking inflation. __________________ Ram Mumbai Properties

03-07-2008	#2
Beenas64 Junior Member Join Date: Mar 2008 Posts: 1	Home Loan Rates Dear Ram, Housing Loan Market is currently is in a flux.On the one hand there is pressure from the Finance Ministry to reduce home loan rates.This being the pre election year any hike will be viewed unfavourably by the Ministry. On the other hand global liquidity is drying up. With some more skeletons expected to tumble out of the cupboards of global financial majors, lending for mortgages and securitisation is literally a dirty word in International circles. True we do not have sub primes in India, yet the dirty colouration of mortgage markets will tend to stick. Another issue is that the FM wants housing loans under 20 lakhs category to be focussed upon. Where are the Affordable homes? With major requirement in the real estate sector coming from the burgeoning middle income group there aren`t enough new offerings in this section. The Government also has paid scant heed to this sector in the 2008 budget.The 80IB Tax benefits to developers also have been scrapped, post March 31, 2007. Service Tax and VAT have been introduced into housing purchases. My accountant friends say that the servixce tax is expected to go up as per the fine prints of Budget 2008. In fact we can expect a rise in taxes after the budget is tabled in the Parliament. Lack of transparency continues to dog the Real Estate Sector.All the big developers who have raised money thro IPOs are showing interest only to attend to the housing needs of the upper class and upper middle class.Of course with the consistent increase in raw material costs developers are also finding it easier to position themselves in luxury markets, where margins are better. Witness the number of high end townships coming up. What then is the fun of announcing reduction in home loans for less than 20 lakhs? Possibly those people who opt for a 60 lakh apartment, then pay 40 lakhs from their own contribution and opt for 20 lakh loans could benefit! With the oil prices surging and food prices going up I do not think the RBI can hold on the inflation rates.If inflation rates go up then we can expect a tightening of liquidity.And then the home loans could start going up. From a broader perspective, land rates must fall. Since the major component of pricing, for any developer is the land cost,unless land costs come down the cost of dwelling units will not come down.If the cost of dwelling units come down then it wouldn`t matter whether the housing loan rates are 13 or 15%, at least for those people who want to buy a dwelling unit. But then the initiative has to come from the Governemment. In terms of appointing a Regulatory Body for Real Estate Industry. In terms of unifying and stream lining Land Registration and other related issues across the country. Making land speculation costly and diffcult for investors. ( For example if speculators who hold on to lands without developing for a period of three years, the Govwernment could bring in compulsory auctionong- this will free enormous amount of lands for development-the Government can further specify that at least 25% of such lands should be used for affordable housing- with 80IB benefits to the developers.) I think looking for a permanent cure is better than just superficially treating the symptoms. Sorry, Ram the FM `s announcement is not very impressive. Beena

5 Days Ago	#3
m Jayant Member Join Date: Jun 2008 Posts: 9	No relief Folks we need to be realistic looking at inflationary and global cues.Realty is facing bad credit crises world over.I think while we enjoy being part of global village phenomenon we should be able to evaluate the flip side too. Jayant

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