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- Reserve Bank of India’s cut good, industry wants more
DELHI: The RBI's decision in its credit policy to cut the short-term lending rates and infuse additional liquidity of Rs 18,000 crore into the banking system will help bring down the interest rates on home loans. Some banks like Punjab National Bank and IDBI Bank have already cut their interest rates by a quarter of a percentage point. Other banks are also likely to follow suit.
Developers and consultants feel that the measure will certainly help in reviving the sentiment in the real estate sector but differ on the extent to which this decision will act as balm.
Naredco, the developers' association, said the decision will help in easing liquidity and boost real estate demand with improved investor sentiment. The realty body said that to revive housing industry, there is a need to bring down the high mortgage rates to improve the common man's affordability, which had been hit in past because of high inflation and rocketing interest rates. It hoped that monetary and fiscal policies of 2013 will prove promising for both realtors as well as buyers.
Naredco said that as real estate growth is linked to around 300 affiliate industries, infusion of additional funds will trigger the business of these affiliates and lift the declining industrial production figures. It will also help in negating the rising menace of inflation and boost real estate demand with improved investor sentiment, it further said.
Welcoming the decision, Credai, another developers' apex body, called for a special thrust in realty sector. "Though the RBI has made a good beginning, the repo rate cut by 25 basis points is just not enough," Lalit Kumar Jain, Credai's national president, said. "What we need is creation of a robust supply to curb inflation for which the RBI needs to continue to ease fund-supply position, month-on-month and quarter-on-quarter for the realty sector," Jain further said.
Sanjay Dutt, the executive managing director (South Asia) of Cushman and Wakefield, said that RBI's populist decision to reduce the repo rate by 25 basis points to 7.75 per cent and also the Cash Reserve Ratio ( CRR) by 0.25 per cent, to 4 per cent, is a step towards easing out financial stress in the financial markets and increasing their liquidity. Anshuman Magazine, the chairman and managing director of CBRE South Asia, a real estate consulting agency, also felt the same. He says that the RBI's decision to ease liquidity in the system is a positive one but is not adequate. He says, "The industry expects more such steps to improve liquidity and reduce interest rates to increase investments."
Shobhit Agarwal, the managing director of (capital markets) Jones Lang LaSalle, India, said that the RBI's policy is definitely a key to boosting real estate market sentiment and sending out positive signals to global investors. The decision, he said, should help revive investment and growth in the economy, in the real estate sector in particular.
Agarwal said that the RBI has shown commitment to improving liquidity in a cash strapped economy by reducing the CRR further in this policy, which has been coupled with reduction in repo and bank rates.
Liquidity is expected to significantly improve in the economy on the back of the reduced repo rate, CRR and bank rate. Cut in CRR by a quarter of a percentage point alone will infuse Rs 18,000 crore into the banking system. Consequently, there should be a revival in investment and growth, including in the real estate. Industrial activity, which has been sluggish last year, should bounce back in the medium term, Agarwal said.
Sanjeev Srivastva, the managing director of Assotech Limited hoped that the much awaited relief, although small in percentage, is going to decide the trend in the coming months.
Sanjeev Srivastva said the present decision would be a great sentiment booster. Manoj Gaur, the managing director of Gaursons, said the RBI's decision will help boost the real estate industry and trigger new trends. Bhaskar Bagchi, the chief operating officer of India Homes, said the RBI's latest cut would have a good impact on the overall buyers' sentiment. Bagchi hoped that the RBI would continue to take periodic steps in this direction as long as inflation is not under check.
S Sridhar, adviser to RICS ( South Asia), says that the RBI's action was on expected lines. "The repo rate reduction will facilitate banks and housing finance companies to reduce home loan rates marginally, which will benefit consumers.
Of course, each lender will have to take a view based on their respective margins position. However, one is not sanguine of increased funds flow to the real estate companies as the issue is not merely one of liquidity but portfolio-quality related," Sridhar says. Overall, he says that the RBI's decision is a sentiment-lifter.
Developers and consultants also expressed concern over rising inflation, which has affected their profitability adversely. They hoped that the RBI's decision would increase the activities in the construction sector. This will increase the supply of housing units and would help in containing the rise in prices, they felt.
In the past, a representative of C&W said, the central bank has been keen on keeping inflationary conditions in control, which had led to stringent policy decisions from the RBI over the last eight quarters. Since the current decision by the RBI is estimated to release Rs 18,000 crore for deployment into various financial institutions, there is an expectation that economic activity will get some boost.
The RBI has also predicted that inflationary trend is expected to remain 'range-bound' and, therefore, moderate infusion of cash into the system would have a positive impact. This may also help in creating a positive outlook for India amongst global investors, who have been worried about depleting cash flows into the economy and, thus, may be setting the background for critical investment decisions in the forthcoming economic policies and the Union Budget.
In this backdrop, Shobhit Agarwal of JLL says: "Inflation should also see some easing with at least the supply side being addressed and cost-push pressures being mitigated. The RBI's policy is definitely a key to boosting real estate market sentiment and sending out positive signals to global investors."
Developers and consultants feel that the measure will certainly help in reviving the sentiment in the real estate sector but differ on the extent to which this decision will act as balm.
Reserve Bank of India’s cut good, industry wants more - The Economic TimesCommentQuote0Flag
- Understand ‘rest’ periods when choosing home loan offers
Financial institutions have various parameters surrounding the loan amount detailing the manner in which the loan is repaid. One such parameter is 'rest'.
This is the regular interval at which the loan amount balance is recalculated and also refers to the periodicity of compounding. This can be possible only in the case of reducing balance loan amounts. A rest can be yearly, monthly or even daily.
Choosing your loan offer
Gayatri approached a bank and chose a loan that offered an annualised rate of 12.75 per cent for a loan amount of Rs 20 lakh for 20 years, while her sister Sanjana had shortlisted among several loans, one that offered an annualised interest rate of 13 per cent. Who got the better bargain?
The loan offer Gayatri obtained was a flat rate loan. Banks can calculate their interest rates either at a flat rate or a reducing balance rate. Sanjana on the other hand, had shortlisted two reducing balance loan offers with different rest periods. As her calculations revealed the loan offer with a monthly rest turned out to be a better loan bargain than the one with an annual rest. Let us examine these two aspects stated above in detail.
At a flat rate, the interest rates are calculated keeping the outstanding amount (i.e. the amount on which interest is calculated) constant throughout the loan tenure while in a reducing balance loan the interest rate is recalculated on a periodic basis based on the reducing outstanding loan amount.
At any given point, a flat rate is always more expensive than an annual reducing balance rate. Even in the case of a reducing balance loan, a significant factor that impacts the loan cost is the time interval at which the reducing balance is recalculated, which could be monthly, daily, yearly, quarterly or half yearly. The accompanying table illustrates the two cases.
It is clear that the effective interest that Gayatri will need to pay amounts to Rs 51 lakh while the loan offers Sanjana had zeroed in has a difference of nearly Rs 20 lakh in the interest paid.
Choosing the offer with the ideal 'rest'
To make the most of your reducing balance loan you need to ensure the periodicity of repayment closely matches the frequency of your rest.
Sanjana was quick to realise this and her calculations revealed that an annual rest would mean that even when you pay EMIs, the loan amount will be recalculated only at the end of the year. This means you would continue to pay interest on the entire loan amount till that particular year (compounding period, when the outstanding loan amount is recalculated) ends, even when the outstanding loan amount reduces each month.
In the case of a monthly rest, the balance amount is recalculated every month. Hence it is to the advantage of Sanjana to take up a loan offer with the rest that more closely matches the frequency of repayment. So if you are repaying on a monthly basis, take up the loan offer that gives you the best rate on a monthly rest.
Banks generally quote an "annualised" interest rate, but remember that interest rates can be deceptive unless you figure out how they are defined. You can easily calculate the total interest by multiplying your EMI into the number of monthly instalments and subtracting the loan amount from this figure. You can then easily identify which loan is most cost effective. Remember to account for any upfront fees while comparing two loans.
What about daily reducing balance, you may wonder. It makes sense to opt for it only if you receive your income at different points during a month and can repay your loan at several or different points of time during a month.
While this may not make sense for a salaried individual, it becomes very relevant to self-employed people that will have funds coming at irregular intervals.
In sum, the key to understanding your loan offers is to zero in the one that gives you the least total interest outflow.
Understand ‘rest’ periods when choosing home loan offers - Indian ExpressCommentQuote0Flag
- Man applies for 'home' online, duped of Rs 58 lakh
A businessman duped of Rs 58 lakh by three men offering him a flat in Goregaon purportedly put up for auction by a nationalised bank has registered a police complaint.
The businessman saw ‘flats for auction’ on a website and was led into believing that the suspects, now on the run, had been authorised by the bank to strike a deal with buyers to auction flats of people who default on home loans.
Bangur Nagar Police Wednesday registered a case of cheating, and applied sections of the IT Act, against director, manager and partner of a company named Flex Next Auction Pvt Ltd for allegedly forging property documents of flats that banks seize from loan defaulters and put up for auction.
According to Bangur Nagar police, complainant Rakesh Salunkhe had come across a website, flexnext, on which flats which a nationalised bank purportedly wanted to auction were listed.
The website claimed that people working for the said company had the authority to sell flats that banks had been wanting to dispose of through auctions.
Seeing the website, Salunkhe called up the number mentioned on the website. Salunkhe was called to their office in Goregaon west.
Salunkhe, in his complaint, said he spoke to the company director, who allegedly told him there was a flat in Bangur Nagar.
In his complaint, Salunkhe said the director, identified as Kailash Parekh, had shown him a letter about the auction purportedly issued by the bank.
Parekh and his partners allegedly demanded Rs 58 lakh from Salunkhe as fee, which was 30 per cent of the cost of the flat.
Salunkhe paid the money and was called on Tuesday to get the flat registered in his name. When Salunkhe reached the office, he found it locked.
“Bank documents had been forged by the company. We registered a case of cheating and criminal breach of trust against three people of the company who are absconding,” said inspector M Lingade of Bangur Nagar police station.
The police are also taking help from cyber police station at Bandra Kurla Complex to find details of website through which the accused lured customers.
“Through the website we have found that the accused contacted and struck deals with people in Vasai and Kharghar,” said an officer with the cyber crime.
“We are also finding out whether employees of banks were involved in issuing letters, pertaining to properties put up for auction, to the accused,” added the officer.
Man applies for 'home' online, duped of Rs 58 lakhCommentQuote0Flag
- Before you switch your home loan...
Home buyers had been facing a scenario of high interest rates which was in existence for a very long period of time. However, during the current year the scenario looks different with the Reserve Bank of India lowering key policy rates. It is widely expected that the central bank would continue to lower rates in its forthcoming announcement. Many banks, in response to the rate cuts, went ahead and announced lower interest rates on home loans, with State Bank of India taking the lead. Moreover prepayment charges on loans have also been abolished in line with RBI guidelines. With these changes happening, how can anyone not be tempted to switch to a bank with lower rate of interest?
Before you decide to take the plunge, halt, and evaluate. One should take into account key considerations before switching loans.
Interest rate variation
Check the existing rate of interest and the interest that you have been offered now. If the new lender's rate is at least 1-1.5 per cent cheaper then it makes sense to switch.
For example, on an existing loan of Rs 75 lakh charged at 12 per cent for 20 years, your current EMI is Rs 82,582. If there is a reduction by 0.5 per cent, your EMI will change to Rs 79,982, a difference of Rs 2,600. However, if the interest rate comes down to 10.5 per cent, the savings would be substantial with your new EMI at Rs 74,879, which means savings of Rs 7,703.
It is a known fact that during the initial years of a home loan, major component of the EMI outgo is towards repayment of the interest component and a small part goes towards repayment of the principal amount, however this changes as the years increase.
For the loan of Rs 75 lakh at 12 per cent cited in the previous example, out of the EMI of Rs 82,582, the interest portion stands at Rs 75,000 and only Rs 7,581 goes towards principal reduction for the first month. So to get a better deal, it pays to switch during the initial years of the loan.
If you are servicing your loan at a very high rate of interest like 14-15 per cent (with interest rates continually being hiked), a switch towards the latter half of the tenure may still be beneficial, but you need to figure out how much interest remains to be paid to arrive at an accurate picture.
A good online loan calculator would show that the savings from switching is lowest when the remainder of the tenure is five years or less. If a switch is carried out towards the later part of the tenure, a significant proportion of the interest component would already have been repaid and the benefit from switching the loan is lost.
Processing fees for new loans
A new lender would typically charge a processing fee ranging from 0.25-1 per cent of the outstanding amount. The country's largest lender, SBI, has currently capped the processing fee to maximum of Rs 10,000. Depending on the amount of loan outstanding, the processing fee will be a determining factor for deciding whether to switch loans or not. The processing fee should be lower than the cost saving that you would make on the interest differential.
However, here you have a catch-22 situation, as the amount of loan will be higher during the initial years of the loan and that is when the switch is more beneficial. But on a higher amount, the processing fee would also be higher. Further, some banks also charge a legal fee for property verification and such added extra costs. This also needs to be figured in the net savings available.
It is not possible to decide whether to switch or not based on a single cost. We will have to work a combination of all costs and decide prudently.
One can also try renegotiating the loan with the existing lender at lower rates to avoid processing fee. No lender would like to lose a borrower with good credit history. Hence this option could be explored before actually opting for loan switch from a different lender with its accompanying hassles.
— The author is CEO, BankBazaar.com
Before you switch your home loan... - Indian ExpressCommentQuote0Flag
- सस्ता कर्ज के लिए लोन अगेंस्ट
प्रॉपर्टी है बेहतर ऑप्शन
आप भले ही जमकर सेविंग्स करते हों, लेकिन कई बार ऐसी स्थितियां पैदा हो जाती हैं जिनमें आपको अचानक पैसे की जरूरत पड़ती है। परिवार या मित्रों से उधार लेना सबसे बेहतरीन विकल्प है। मगर कई बार काफी ज्यादा रकम की जरूरत पड़ सकती है। ऐसे में सबसे बेहतर विकल्प यह है कि आप अपने पास मौजूद संपत्तियों (अपने घर) पर कर्ज लें।
बैंक से लोन लेने के लिए आप अपने घर को कॉलेटरल के तौर पर यूज कर सकते हैं। बैंक आपकी प्रॉपर्टी की पूरी जांच पड़ताल करता है, इसकी वैल्यू आंकता है और आपको इसकी वैल्यू का 70 फीसदी तक लोन देता है। चूंकि यह एक सिक्योर्ड लोन होता है, ऐसे में आपको इस पर पर्सनल लोन जैसे अनसिक्योर्ड लोन के मुकाबले ज्यादा रकम मिल सकती है। निश्चित तौर पर आपको इसके लिए ऐडमिनिस्ट्रेटिव और प्रोसेसिंग फीस चुकानी होती है, जो कि अमूमन 0.5 फीसदी से 1.5 फीसदी तक होती है। आम तौर पर इस लोन का टैन्योर 1 से 9 साल तक का होता है। लेकिन अगर लोन बड़ा हो तो कुछ बैंक इसे बढ़ाकर 15 साल तक कर सकते हैं। इस पर लगने वाला इंटरेस्ट रेट 12 से 16 फीसदी के बीच होता है, जो कि फ्लोटिंग या फिक्स्ड होता है। इस तरह से यह पर्सनल लोन के मुकाबले काफी सस्ता बैठता है।
क्रेडिटबिद्या के डायरेक्टर राजीव राज के मुताबिक, 'प्रॉपर्टी के बदले लोन लेना निश्चित तौर पर पर्सनल लोन के मुकाबले काफी सस्ता बैठता है। पर्सनल लोन में आपको अमूमन 14 से 22 फीसदी ब्याज चुकाना होता है। लोन अगेंस्ट प्रॉपर्टी से सस्ता केवल एक लोन पड़ता है और वह है होम लोन।'
प्रॉपर्टी पर लोन लेना इसलिए भी सस्ता पड़ता है क्योंकि इसमें कर्ज चुकाने के लिए दूसरे लोन के मुकाबले आपको ज्यादा लंबा टेन्योर मिलता है। पर्सनल लोन जैसे अन्य लोन पर कर्ज चुकाने की अवधि अधिकतम पांच साल होती है। निश्चित तौर पर, आप इस लोन का प्रीपेमेंट भी कर सकते हैं। इसमें बैंकों के लिए रेगुलर होम लोन की तरह गाइडलाइंस तय की गई हैं। हालांकि बैंक फ्लोटिंग रेट लोन के लिए कोई फीस चार्ज नहीं कर सकते हैं, लेकिन फिक्स्ड रेट लोन के लिए इस पर 2 से 4 फीसदी की पेनाल्टी लगती है।
अपनी प्रॉपर्टी पर लोन कैसे लें?
अगर आप जिस प्रॉपर्टी के बदले लोन ले रहे हैं उसके एक से ज्यादा मालिक हैं, तो उनमें से सभी को लोन लेने के लिए ज्वॉइंट एप्लीकेंट्स बनना होगा। आप किसी भी तरह की फ्रीहोल्ड प्रॉपर्टी पर लोन ले सकते हैं, इसमें घर से लेकर प्लॉट तक कुछ भी हो सकता है। इससे भी फर्क नहीं पड़ता है कि आप इस संपत्ति में खुद रह रहे हैं या इसे रेंट पर दिया हुआ है।
अपनापैसा.कॉम के फाइनैंशल प्लैनिंग के हेड पंकज मालडे के मुताबिक, 'सबसे जरूरी चीज यह है कि प्रॉपर्टी का टाइटल क्लीयर होना चाहिए और इसमें कोई विवाद नहीं होना चाहिए।'
बैंक प्रॉपर्टी से संबंधित सभी दस्तावेजों की जांच करता है, साथ ही आपसे रेजिडेंस प्रूफ भी मांगता है। आपको आइडेंटिटी प्रूफ की कॉपी भी जमा करानी पड़ती है। अगर आप नौकरी कर रहे हैं तो आपको पिछले छह महीने का बैंक स्टेटमेंट भी देना पड़ता है। जबकि सेल्फ एम्प्लॉयड पर्सन को गुजरे दो साल का सर्टिफाइड फाइनैंशल स्टेटमेंट देना होता है।CommentQuote0Flag
- NHB hopes for more easing in ECB norms for housing fin cos
The National Housing Bank is looking forward to relaxations in external commercial borrowing norms for housing finance companies (HFCs) to enable larger number of players to tap the route.
“We are expecting to modify some of the features (with regard to ECBs), which are a little restrictive now,” NHB Chairman and Managing Director R V Verma said. This is being considered by RBI and the government to allow more players, he added.
“The RBI has already sent its recommendations to the government which are being considered on share capital and networth of HFCs,” Verma said. The existing norms with regard to Rs 50 crore of paid-up capital and Rs 300 crore of net-owned funds (NOFs) are being examined to allow more players in the ECB fold, he said.
The RBI had allowed real estate developers, developing low-cost housing, and housing finance companies to raise up to $ 1 billion through ECBs last fiscal. Verma also pointed out that the ECB limit for FY'14 would be determined after exhausting the limit for FY'13. The NHB has also sought some clarifications from the Finance Ministry regarding tax exemption in securitisation deals.
“We are awaiting some clarifications from the Finance Ministry with regard to securitisation,” Verma said, adding that the housing finance regulator will go ahead with the proposed Rs 200-crore securitisation deals after the clarification.
The FY14 Budget has provisions to exempt securitisation trusts from taxation. On loan disbursements, Verma said the NHB plans to increase loan growth by 20 per cent next fiscal. (NHB follows July-June financial year).
“We plan 20 per cent growth in loan disbursement to Rs 20,000-21,000 crore in the next fiscal from Rs 17,000 crore target of this financial year,” he said. Verma also pointed out that the proposed Urban Housing Fund would start in one month.
This year’s Budget has provisions for setting up an Urban Housing Fund to support affordable housing in urban areas. — PTICommentQuote0Flag
- Changing profile of the home loan buyer
A home will always have a deep connection with every individual and buying one's own home is fondest dream of almost every Indian. The housing industry in India has been growing at a robust 14-15 per cent and is projected to continue to grow for the next few years.
There is an estimated shortage of around 22 million houses by 2014, and the government and apex bodies like the National Housing Bank (NHB) are playing a vital role in trying to fill this gap. The growth in this sector as well as the changing profile and consumption behaviour of the upwardly population have also brought about a sea change in many aspects of the industry, and most notably the profile of today's home loan buyer.
One of the most evident changes is the decreasing age of the home loan buyer. There has been a trend of reduction in the average age of the home loan buyer from the mid-40s to the mid-30s over the last two decades. There is also a growing segment of under-30 year olds who are buying homes and taking loans for the same.
The rising income levels of this segment coupled with growing aspirations have been major causes of this change in profile. Another major contributor to this phenomenon is the easier access to credit fuelled by banks and housing finance companies (HFCs). Most loan providers view home loans as a high growth product and have been diverting focus to it in the last few years.
Another aspect that has changed is the purpose of a home purchase. While purchasing a house for the purpose of living in it still remains the major reason, there is a growing segment of home buyers who buy a second home for investment purposes.
They also could take a larger home loan for the same as they are aware of the taxation benefits that they can avail of as a result of it. Financially savvy investors are now making use of these multiple benefits of a home loan. As long as there is a significant growth in the housing sector and appreciation of prices, this segment will continue to grow. It is estimated that the Indian mortgage market accounts for 7 per cent of GDP and about two-thirds of the savings of customers availing home loans are deployed in payment of EMIs. Attractive interest rates and ease of credit access here too contribute to the growth of this profile among home loan buyers.
A large chunk of growth in home loans is now coming from tier I and II cities, with the metros approaching a saturation point. The new segment of home loan buyers now come from high growth areas like Pune, Bangalore, Ahmedabad and other non-metro locations. As a product segment, the growth has been seen in 'affordable housing', with a loan ticket size in the range of Rs 25-40 lakh. Banks and HFCs offer their most attractive rates for this range, and this has fuelled its growth.
Developers have begun shifting their projects to newer non-metro locations or on the outskirts of large metros. This has helped in de-congestion of many cities and banks and HFCs also provide a pre-approval for home loans for most of these projects.
Today's home loan buyer is an empowered individual. Not only is he spoilt for choice, both in terms of properties to buy, but also in terms of home loan providers willing to fund his purchase. He has access to information, is more financially aware and will have multiple banking or financial service relationships.
To cater to this new profile, banks and HFCs will have to value-add and provide high levels of personalised and dedicated service, both at the time of sale as well as through the duration of the loan.
— The author is MD, Tata Capital Housing Finance
Changing profile of the home loan buyer - Indian ExpressCommentQuote0Flag
Buying a home has become easy with innovative plans and schemes launched by developers. Most of them have tied up with banks to introduce subvention or no-EMI-till possession schemes to make property transactions customer-friendly.
So, what is this subvention scheme? Who actually pays for the EMI? Who benefits more from the scheme - the developer, bank or buyer? Are there any hidden costs or conditions in such schemes that the buyer should be cautious about?
Under the subvention scheme, if someone buys a property under construction, he or she does not have to pay any EMI for a defined period (typically 18 to 24 months) or until he/she takes the possession of the house. The developer takes the responsibility of paying the EMI on the loan taken by the buyer.
Usually, private and nationalised banks tie-up with only ‘category-A’ developers to offer loans for such subvention schemes. It is also called as 80:20 scheme as the buyer has to pay the booking amount (20%) initially and give the remaining 80% during possession.
The advantages for a developer is that he accesses funds at a much cheaper rate of interest than commercial loans. Moreover the entire sales proceeds are collected beforehand, which puts the developer in a better position to finish the project on time and cost-effectively. The developer also gets credibility by being associated with nationalised or private banks and earns brownie points for paying the EMI on behalf of the buyer.
The banks, too, stand to gain as they get access to a larger customer base and can earn revenues from application processing and prepayment charges from the customers.
For the end-users the scheme offers dual benefits by, a: providing relief in terms of cash outflow in both rent and EMI during the construction period; and b: ensuring timely delivery of the project as a delay will be disadvantageous for the developer and result in incremental cash outflow till the delivery of the project. By only paying 20% of the booking amount the buyer can profit from the appreciation on the property value during the construction period.
However, before investing in such schemes one should do complete due diligence. All documents related to the property should be checked thoroughly. The BSP rates of other schemes such as construction linked plan and downpayment plan should also be checked out as the buyer could end up paying more for the property. Thirdly, in the subvention scheme the customer is not offered any discount like in the downpayment scheme for which the developer also gets upfront sale value of the property.
Fourthly, the buyer should compare the rate of interest charged in this scheme with the prevailing rate of interest as not many banks participate in this scheme and hence end up charging a bigger rate of interest. This can be counterproductive if development is delayed and is comparatively more expensive compared to a construction liked plan where the buyer pays as per construction milestone completion.
Last of all, the customer should rememer that the developer will pay only the interest part; however, the responsibility of paying the principal amount rests with them. Further, such EMIs are generally calculated by thebuilders on the basis of the prevailing interest rates so any future increase/ decrease in the interest rate has to be paid by the buyer.
Therefore, the buyer ends up paying higher EMIs on getting the possession of the property. Customers should invest with developers who have got all approvals and licenses in place and have a good track record of delivery on time for past projects. Though the subvention scheme offers benefits to both the developer and buyer, however, it is imperative for the buyer to cross check allcalculations and track record of the developer before opting for such schemes.
13 Apr 2013Hindustan Times (Chandigarh)CommentQuote0Flag
- Buying house in a bank auction? Take care of additional costs
With the zooming real estate prices showing no sign of hitting a speed bump, many prospective buyers have begun to tap another avenue to buy cheap houses—auction properties. Though it's not a common practice, banks auction the houses that they foreclose. What makes them attractive is that their selling price is usually advertised as being 15-20% less than the prevailing market price in that particular locality. However, before you jump at the prospect of buying one, consider the ramifications.
A bank auctions the properties for which the owner is unable to repay the home loan taken from the bank. This means that there could be various incidental expenses that you too could have to pay. When a borrower misses a couple of EMIs on his home loan, the lender sends him notices. If he continues to default for a few months, the bank takes over the house under the SARFAESI Act. The property is then put up for auction and this is advertised in the local dailies.
As the bank is only interested in getting its outstanding principal and some interest component, this amount is listed as the reserve price for the auction. This is usually much lower than the price that the property would fetch in the market. If the final auction price is higher than the reserve price, the extra amount is handed over to the original owner.
What to check
The low reserve price may seem tempting, but you need to ascertain whether the amount mentioned by the bank is the gross price or if there will be additional costs that you may have to pay later. Here are some questions you need to ask before you bid.
Are there unpaid dues?
When a bank auctions a property, it is sold on an 'as is where is' basis, so you should read the bid document carefully to find out if there are any unpaid dues. "The bid document is like the prospectus of an IPO, where all the facts covering the legal title and responsibility for pending dues are stated," says Om Ahuja, chief executive officer, residential services, Jones Lang LaSalle India.
In most cases, the owner is not in a position to pay the dues to the bank and knows that the property will be seized. So he doesn't bother to pay the associated fees, such as the society maintenance charge or property tax. From the time he receives the first notice till the property is taken over, there is a minimum period of six months. This means that if you buy the house, you will probably have to pay at least six months' worth of outstanding dues.
Obviously, the utility bills are also unlikely to have been paid. It's possible that some utilities have been disconnected or discontinued, such as the removal of the electricity meter. So, you will have to pay for renewing the connections, along with the late fee, if any.
How much repair work is needed?
Most banks do little to keep the property in good condition after taking possession. So, you may have to undertake some renovation or maintenance work to make it more habitable. It would be a good idea to visit the property and calculate how extensive the repair work is likely to be and how much it will cost.
Also, as the property is being sold on an 'as is basis', you will be responsible for any damages that may have been caused directly or indirectly to other properties around it. For instance, if there is water seepage while the house is in the bank's possession and this damages an adjoining property or the one below it, you, as the new owner, will have to pay for it.
It's also possible that the previous owner has left some stuff in the house. You will have to check with the bank about the person who will assume responsibility for it. Will you have to pay extra for any furnishings, furniture or appliances that have been installed by the previous owner? Will the previous owner collect these or will you need to dispose of these? Who will be entitled to the money received on the sale of these items?CommentQuote0Flag
- Essel Group launches Rs 500-crore real estate private equity fund
BANGALORE: The Subhash Chandra-owned Essel Group has launched a Rs 500-crore real estate private equity fund, a person with knowledge of the development said. "The Securities & Exchange Board of India has approved and given licence for category II AIF (alternative investment fund)," the person said, adding that it will be close ended and have a four-year tenure.
The fund, India Asset Growth Fund series I, has been launched under Essel Finance Managers, the group's private equity business. Amit Goenka, managing director and chief executive of Essel Financial Services, the holding company, confirmed the creation of the fund but did not give any details.
According to the person quoted earlier, the fund has a target net internal rate of return of over 20%. It will primarily invest in urban residential real estate projects across Mumbai, NCR, Bangalore, Chennai, Pune and Kolkata. The ticket size of the investment will range from Rs 75 crore to Rs 100 crore. Under Sebi rules, category II AIFs do not get any specific incentives or concessions from the government or any other regulator.
These funds are close ended, cannot engage in leveraging and have no other investment restrictions. The fund, with a greenshoe option of Rs 500 crore, achieved first close of Rs 200 crore earlier this year, the person said, adding that Essel plans to launch by mid year a $100-million offshore fund that will co-invest with the domestic fund.
Essel Group launches Rs 500-crore real estate private equity fund - The Economic TimesCommentQuote0Flag
- To invest or prepay? A crucial decision
Ramesh has just received his annual bonus of Rs 3 lakh. He has a home loan for Rs 35 lakh with a private bank, and pays interest at 11 per cent per annum. The equated monthly instalment (EMI) paid by Ramesh is Rs. 34,500. He wishes to reduce this huge burden progressively.
The long tenure of a home loan results in a substantial interest outflow, in addition to the huge principal repayment. In most cases, the total interest repaid is more than the original loan amount. A considerable portion of the EMI goes towards the interest component, and only a minuscule portion is allocated towards principal. As in the case of several borrowers, Ramesh also faced this problem. How can he reduce this burden?
Ramesh has two choices: Either increase the EMI amount to reduce loan tenure, and the interest outflow, or part-prepay the loan with the bonus he received. Ramesh found the latter option more feasible. But he had another dilemma of whether to repay the loan or to invest this amount in good investments. Let us look at both the cases:
When to Prepay?
A major portion of the EMI is allocated towards interest, especially during the initial 5-8 years of your loan. This is the best time to part-prepay the loan. When you prepay, the full amount goes towards reducing the principal. This in turn reduces the total loan period and total interest outflow.
If you are placed in a situation, which does not assure a regular income, you should prepay your loan whenever you receive any windfalls.
Another factor to be taken into account is the interest rate scenario in the economy. If there is an expectation that interest rates may harden, you should prepay as an increase in rates will result in an increase the interest burden on your floating rate home loan as well. In this scenario, you may end up paying a higher EMI, or there will be an increase in the loan tenure. Remember, it is always better to reduce the tenure and pay off the entire loan before retirement.
The most common deliberation is whether to use the cash to reduce the home loan amount or to invest this amount. You can prepay when the interest rate on your home loan is higher than the post-tax interest rate you earn from your investments. Do remember that interest rate cycles move up and down and so returns from equity-related instruments can be volatile.
When not to Prepay?
Compare the returns from your investment and the interest on your home loan. Invest the lump sum cash received if the post-tax return from your investment works out to be higher than the home loan rate. You must also consider the tax benefits of a home loan for both principal and interest components. So when the rates are compared, the reduction in tax outflow due to these deductions must be factored. Investing in fruitful investment avenues makes sense if you are below 35, as you can repay the loan before retirement.
The third option
Yet another option is to port your home loan to another bank, which charges a lower interest rate. As RBI has waived prepayment charges on floating rate home loans, even if you do a balance transfer to another bank, you can now easily shift banks without incurring high costs. While the interest rate is the most important factor to be considered when you shift banks for home loans, remember to consider a few other things. An important expense you will incur is the processing fee charged by the new bank. In addition to this, you may also have to incur expenses on stamp duty and related charges and insurance premium (some banks require you to compulsorily take a fire insurance for your house).
Your existing lender may offer you a lower interest rate if you pay conversion fee, which is more or less equal to the processing fee in the new bank. If this reduced interest rate is the same as the new lender's rate, it is better to stay with the existing lender.
Your decision to part-pay the loan or not depends on several factors. Remember you must always try to maximise your earnings, either by reducing your interest outflow or by maximising your investment returns.
— The author is CEO, BankBazaar.com
To invest or prepay? A crucial decision - Indian ExpressCommentQuote0Flag
- National Housing Bank forms India’s 1st loan mortgage guarantee company
Source: Times Of India Publish: 24-April-2013CommentQuote0Flag
- ‘Our products will enable early home ownership with a lower down payment’
The India Mortgage Guarantee Corporation (IMGC) is a first-of-a kind entity set up in the country. Its primary function would be to offer mortgage guarantees on housing loans. Amitava Mehra, the CEO of IMGC in an interview to L Ramakrishnan says that in the years to come, the aspiring home owner will be able to buy a home earlier and with significantly lower down payments. Excerpts:
What is a mortgage guarantee company and why is there a need for it in India?
A mortgage guarantee company is a non-banking financial company formed under the Mortgage Guarantee Company (Reserve Bank) Guidelines, 2008. A mortgage guarantee company's primary business shall be to offer mortgage guarantees against borrower defaults on housing loans from mortgage lenders.
The residential mortgage industry is an important pillar for economic growth of the country. Mortgage guarantee will be able to add significant value to the Indian mortgage sector over the long term through efficient use of capital, risk transfer and risk mitigation, which will also translate to early home ownership for first time home buyers and help expand access to housing in India.
What is the role of the IMGC? What is its structure? How will it function?
IMGC will provide credit guarantees to banks and housing finance companies on behalf of the borrowers. The lending institutions, having taken guarantee cover from a mortgage guarantee company, can benefit from capital relief against such guaranteed loans through lower risk weights.
IMGC has been registered by the Reserve Bank of India (RBI) as the first mortgage guarantee company in India. The company is a joint venture between the National Housing Bank (NHB), Genworth, Asian Development Bank (ADB), and International Finance Corporation (IFC), a member of the World Bank Group. NHB has a shareholding of 38 per cent of IMGC, Genworth has a stake of 36 per cent, while ADB and IFC, have a 13 per cent stake each in the joint venture company.
IMGC will operate under the mortgage guarantee guidelines of the RBI. As per the guidelines, a mortgage guarantee company is required to maintain a minimum capital of Rs 100 crore at all times. One of the key factors for a mortgage guarantee company is its rating. ICRA has assigned an issuer rating of IrAA (Stable), and CARE has issued an in-principle rating of AA+ (Is).
How do you plan to raise capital? What are your short-term and long-term plans?
The joint venture partners have infused the initial capital and will contribute further funds in the form of equity capital, as and when required to meet the capital adequacy requirements as per RBI regulations. Our short-term capital needs will be met by investments from existing partners, and over time we will have to look at alternate sources of funding to meet long-term growth requirements.
The corporation's primary clients will be housing finance companies and banks that are presently responsible for the majority of mortgage lending in India. The product will be initially offered on the existing books of lenders to enable both IMGC and the lender partners to smooth out the operating processes before offering the same on new mortgage loans.
How will the formation of the IMGC benefit the aspiring home owner?
As the product matures and regulations evolve, lenders will be able to improve product offering in terms of lower interest rates or higher loan to value (LTV) ratio on the underlying property. For example, an originator may be willing to offer an LTV of 90 per cent loan with guarantee cover as opposed to 80 per cent LTV on a standalone basis, resulting in greater affordability for the buyer (lower equity contribution), thereby stimulating demand. This will lead to early home ownership for a first time home buyer with a lower down payment.
What is the impact the corporation expects to make in the housing finance market?
The mortgage guarantee product will help reduce the quantum of credit risk in lenders portfolio (as some proportion of risk would stand transferred to the company), release capital which can be further deployed in business resulting in higher business volumes and improved profitability, improving return on equity and diversify sources for high quality equity capital for the lender.
The product can also provide greater impetus to the securitisation market, as the requirement of credit enhancement to be provided by the lender would come down if the underlying loans included in the securitised pool have guarantee cover, thereby making such transactions more attractive. Over time, usage of mortgage guarantees by lenders will lead to standardisation of definitions, practices and processes across the industry just like evolution of credit bureaus has led to standardisation of data used for credit appraisals.
This product will provide an alternative equity source and help mortgage lenders maintain prudent capitalisation levels even in unfavourable market conditions, without having their growth prospects curtailed or compromising on shareholder returns.
Is this an Indian version of Fannie Mae? If not, how does it differ?
No, IMGC is not the Indian version of Fannie Mae. The charter of the two institutions is very different, while Fannie Mae is a US government sponsored enterprise to help develop the market; IMGC is a private limited company operating on a commercial basis providing guarantee cover to lenders.
Fannie Mae is formed with the primary purpose to expand the secondary mortgage market by securitising mortgages in the form of mortgage-backed securities. Their business model is to borrow at low rates by selling bonds with implied government guarantee and lending by creating mortgage backed securities. Fannie Mae also assumed credit risk on mortgage loans underlying these assets for a fee, providing guarantee that principal and interest will be paid in case of borrower default.
IMGC is a private limited company, which cannot be a subsidiary of any other company as per the RBI guidelines. The primary business of a mortgage guarantee company is to provide mortgage guarantee on residential mortgage loans for a fee, guaranteeing the repayment of outstanding principal and interest upto the guaranteed amount to a creditor institution, on the occurrence of a trigger event (which is the classification of an account as a non performing asset as per RBI guidelines).
Further, each loan guaranteed will have to pass through the credit screens of the company improving the quality of the portfolio.
‘Our products will enable early home ownership with a lower down payment’ - Indian ExpressCommentQuote0Flag
- India Developers Enable Rate Break to Lure Homeowners: Mortgages
Indian homebuilders, facing the highest borrowing costs in two years, are enticing homebuyers to help finance projects as they work to revive sales and cut debt.
Developers including Mumbai-based DB Realty Ltd. and Sunteck Realty Ltd. (SRIN) are offering to make buyers’ mortgage payments while their home is being built in return for an upfront deposit of as much as 30 percent that they’ll use to help fund construction. Indian mortgage rates, among the highest in Asia at about 10 percent on average, are still preferable to rates for commercial-bank construction loans, about 15 percent.
“Developers are looking to counter a slowdown in volumes through these schemes,” said Bhaskar Chakraborty, a Mumbai- based analyst at brokerage IIFL Ltd. “Affordability in Mumbai is the most adverse across major metros, with apartment-sale registrations in the city languishing at a three-year low.”
Indian builders are struggling to reduce debt and increase sales with interest rates near a two-year high and prices at a record high in Mumbai, the country’s financial capital. With sales slowing, the financing plans provide an incentive to potential buyers, and immediate cash for builders. The combined debt of India’s six largest developers climbed to a record 370 billion rupees ($6.8 billion) in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by IIFL.
Such financing plans, which tend to stoke demand from property investors rather than those planning to live in the purchased homes, could prompt further tightening measures from the central bank, Chakraborty said. Investors, deferring payments are betting on rising home prices to exit, when the apartment is ready.
The Reserve Bank of India in 2010 asked banks to set aside more money against loans on so-called teaser rates, where buyers get discounted interest rates in the initial years. It also capped housing loans at 80 percent of the property value, from 90 percent, as it sought to check rising home prices.
The financing options are being advertised as 20:80 because homebuyers have to pay 20 percent of the value of the home at the time of purchase, while lenders offer mortgages for a maximum of 80 percent of the value. Builders agree to pay the mortgage for up to two years, promising completion of the home in that period.
The offer by DB Realty (DBRL), the worst performer on the National Stock Exchange’s 10-member property index this year, allows buyers to pay 19.9 percent of the cost when they buy and the rest when the apartment is completed. Sunteck Realty is asking for 30 percent of the home value upfront.
The stock of unsold homes at new residential projects climbed to a record in the quarter ended Dec. 31, as rising prices crimped affordability in the nation’s biggest cities, according to Pankaj Kapoor, founder of property research company Liases Foras Real Estate Rating & Research Pvt. Total unsold inventory of residential stock in the six major cities tracked by Liases Foras climbed to 100 million square feet (9.3 million square meters), the highest since 2009.
Home prices in Mumbai, India’s most expensive real estate market, rose to a record high at 11,626 rupees a square foot in the quarter ended March 31, according to data from Liases Foras.
Construction delays present the biggest risk for homebuyers. If the project isn’t completed within the two years, the buyer will have to start making payments on a home they can’t move into.
“For two years, the developer will pay the interest, but the big assumption there is that the project will be completed,” said Ambar Maheshwari, managing director of corporate finance at property brokerage Jones Lang LaSalle India. “If the project isn’t completed or is delayed, the bank will come after the buyer, not the developer, in the event of a default.”
Construction delays are rampant in India. Sixty-one percent of developments in eight cities across India are not completed on time, according to data from Liases Foras. Twelve percent are delayed by more than two years, the data showed.
Developers are also raising prices as a tradeoff for paying buyers’ mortgages.
Mumbai-based DB Realty is selling its Orchid Crown condominium project in the city for 26,000 rupees a square foot, while charging 25 percent more for customers opting for the deferred-payment plan. DB is offering the option for all its projects, with about a quarter of its sales being generated through the plan, said Chief Executive Officer Vipul Bansal.
“We are seeing a boost in sales and this scheme is gaining ground because it addresses the concern of delays in project completion,” Bansal said in a phone interview from Mumbai. “There is a separate charge for this financing. We calculate the interest and add it on to the base rate to factor in the interest costs.” Bansal said he wasn’t replacing bank construction loans with mortgages and charges the higher rate to customers to service loans on their behalf.
Sunteck, which is developing residential projects in Bandra Kurla business district in the north of Mumbai, is offering the deferred-payment plan as an incentive for buyers after raising the price of the apartments at its Signia Oceans project in Navi Mumbai, a planned satellite township developed in 1972, about 36 kilometers (22 miles) from the southern tip of Mumbai city. The condominiums will be completed in about six months and the company has enough funding to finish the project, said Chairman Kamal Khetan.
“Since we have raised the selling price, we are offering this plan to boost sales and incentivize customers,” Khetan said in a phone interview from Mumbai, adding that Indian developers typically start offering the so-called “80:20 scheme” when they struggle to sell apartments.
“We have negligible debt so we don’t need to do this to raise money,” he said.
Even after the RBI cut funding costs in March for a second time this year to 7.5 percent, rates are near a two-year high. The central bank, which is scheduled to meet on May 3, has said lingering inflation reduces the scope for further cuts.
Higher interest rates and a cultural aversion to debt account for India’s relatively low home-loan penetration rates. Home loan debt of $104 billion is equal to 8 percent of gross domestic product compared with 20 percent in China and 77 percent in the U.S., according to data compiled by Housing Development Finance.
India’s average mortgage rates compare with about 2 percent in Hong Kong, 6.5 percent in China, and 6 percent in South Korea, according to Credit Suisse Group AG.
The Wadhwa Group, which has teamed with Hong-Kong based Langham Hotels International to create India’s first airport transit hotel, has secured funding for one of its Mumbai condominium projects by persuading enough buyers to opt for the deferred-payment plan, said Chief Financial Officer Srinivasan Gopalan. In return, Wadhwa assumed liability for their mortgage interest payments for the first two years, he said.
“Developers do not get a good interest rate,” said Gopalan. By utilizing this payment plan, “I save about 300 to 350 basis points -- that’s huge. It gives me complete financial closure for the project and I am passing on this benefit to the customers, too.”
Lenders including Indiabulls Housing Finance Ltd., Housing Development Finance Corp. and ICICI Bank Ltd. are financing such deferred-payment options.
“The main advantage is that the 20:80 plan allows customers to better plan their cash flows,” Ashwini Kumar Hooda, deputy managing director at Indiabulls Housing Finance, said in an e-mailed response to queries. “The disadvantage to customers is that in most cases developers hike the selling rate of homes to factor in the additional burden of bearing interest during construction.”
Homebuyer Nilesh Jani is betting that the financing is worth the risk. He bought a 1,500-square-foot, two-and-a-half bedroom apartment in Wadhwa’s Address project in Mumbai for 19.8 million rupees. Jani made the initial 20 percent down payment on the house and is taking the remaining 80 percent through a loan from ICICI Bank Ltd.
“I know I am paying a higher rate for this financing plan, but it buys me some time,” said Jani, 42, who works for a private equity firm in Mumbai. “It allows me to defer my payments by two years, and hopefully in that period I will have a higher salary and bonuses to help me make my payments.”
Source: businessweek.com By: Pooja Thakur Publish: 29-April-2013CommentQuote0Flag
- How banks calculate loan eligibility
How banks calculate loan eligibility | Photo Gallery - Yahoo! India FinanceCommentQuote0Flag