Latest Property News on 'Home Loans'

RBI Hikes Repo Rate by 25 bps: Home Loan to Get Costlier

The RBI on Tuesday hiked repo rate by 25 basis points. It said likelihood of rate action in December mid-quarter review was “relatively low”. The central bank also deregulated savings bank deposit rate with immediate effect. The 13th hike since March 2010 will make home and auto loans costlier with banks likely to pass on the hike and put further pressure on economic growth. With food inflation entering double digit figures and headline inflation almost touching the mark, most analysts did feel the central bank would increase repurchase rate by 25 basis points to 8.50 per cent.

The RBI has hiked key policy rates 12 times since March 2010 to control inflationary pressure. However, that hasn’t helped in bringing down inflation much. The central bank hiked repo and reverse rates by 25 basis points each to 8.25 per cent and 7.25 per cent respectively last month. Food inflation rose sharply to cross double digit levels at 10.6 per cent for the week ended Oct 8 as against 9.32 per cent in the previous week. The headline inflation based on the wholesale price index was recorded at 9.72 per cent in September, according to the latest official data.

Inflation has remained almost near double digit since January 2010, despite an aggressive monetary tightening by the central bank and the claims of a series of fiscal measures by the government. However, the rate hike has shown its negative impact on the economic growth. Industrial production has slowed down considerably in the past few months. It was registered at a sluggish 4.1 per cent in August rising a bit from the 3.8 per cent seen in July — its lowest in almost two years. GDP growth slowed to 7.7 per cent in April-June period, the weakest in six quarters.

With rising cost of inputs and high interest rates, industrial output is likely to remain subdued in the coming months. According to a recent survey by the Confederation of Indian Industry, business confidence, especially among smaller firms, has declined in recent months. The CII’s quarterly business confidence index has declined by 2.5 per cent in the third quarter of 2011-12 as compared to the previous quarter.

IDBI Bank Cuts Interest Rate on Home Loan by 25-50 bps

IDBI Bank has cut interest rate on floating rate home loan scheme by 25 to 50 basis points for all existing customers. The bank has also introduced a fixed-cum-floating rate home loan product for new customers. Further, the bank has also decided to offer concession of 100 basis points (1 per cent change is equal to 100 basis points) in rate of interest for all segments of auto loans, the bank said in a statement. The bank said it reviewed its home loan rates in view of the market scenario, competition offerings and provide benefits to customers during the festival season.

All new borrowers would be given an option of either fully floating rate or a combination of fixed and floating rates. The bank has waived the processing fee for loan amounts upto Rs 25 lakh. Under the composite fixed-cum-floating home loan scheme, the bank will charge fixed interest rate for one to two years. Thereafter, the interest rate would be linked to the bank’s base rate, which is currently at 10.75 per cent. Depending on the loan amount, the interest rate on the composite fixed-cum-floating home loan scheme, which has fixed interest rate for one year, ranges from 10.75 per cent to 11.75 per cent. In the case of a loan on which interest rate is fixed for two years, the interest rate ranges from 11 to 12 per cent. The bank has decided to waive the processing fee for auto loans. All the offers are applicable to the new loans sanctioned between October 15 and December 31, 2011.

Home Loan Demand High Despite Rise in Interest Rate

Rising interest rates have had little impact on home loans. Borrowings have gone up 21% since March 2010 even as rates have gone up by around 300 basis points in the same period. Some of the pick up in loans is from tier-I and tier-II towns where property prices have remained relatively subdued. Some have also begun utilising their undrawn limits. According to the Reserve Bank of India’s latest data, aggregate home loans by commercial banks rose 21% to Rs 3,64,170 crore as of end August 2011 from Rs 3,00,929 crore in March 2010. In the current year, much of the growth in bank credit has been driven by home loans.

While total bank loans have risen 20.2% year-on-year (YoY) as of August 26, 2011 against 19.3% in the previous year, home loans rose 15.3% in the same period compared to 10.9% in the previous period.The RBI has raised its key policy rates by 300 basis points (one basis point is 0.01%) in the same period. Though home loan rates do not necessarily move at the same rate as the central bank signals, individual banks’ lending may vary by some margin. It is reckoned that on an average home loan rates have gone up by around 200 basis points. Most banks charge 13-13.5% interest for fixed-rate home loans. “The growth is largely coming from tier-II and tier-III centres,” said Keki Mistry, vice-chairman and managing director, HDFC.

Some lenders are also offering products to suit customer requirements that is partially contributing to the rise in loans. “We have also launched a fixed-rate product as there was a demand from customers who wanted to buy homes but were scared of the constant rise in interest rates,” he added. In recent years, most of the borrowing is on a floating-rate basis. Under this route, whenever borrowing rates change, the equated monthly instalments (EMI) also change, but the tenure changes accordingly. Customers who were worried that EMI keeps moving up and down, are now exploring fixed-rate products.

“We are witnessing high demand for fixed-rate products , which is why we launched our new fixedrate product,” said Jairam Sridharan, senior vice-president, head consumer lending and payments at Axis Bank, which launched a lifetime fixed home loans product last week. ICICI Bank and HDFC have also come out with limitedperiod, fixed rate products. Another possible explanation offered by banks is that some borrowers have started drawing on their unutilised limits, which has pushed up the loan figures. “The increase in home loan disbursements could be largely on account of the past approvals. Customers avail of disbursements with a lag, hence this is part of the old pipeline,” said the home loan head of a private bank. “We would have to wait a week to see if fresh demand comes, as the festive season is on the anvil. Many developers have launched a series of freebies and discounts to woe customers,” he added.

Developers Lure Doha NRIs to Invest in India

Indian property developers called upon potential buyers in Doha to take advantage of recessionary trends in the global economy and make investments in the real estate sector of growing economies like India. The two-day Indus Property Exhibition 2011 was held in the city recently, where Indian real estate developers showcased their properties. In a joint statement issued on the occasion, the participating companies said that “with India beginning to resurface itself as a formidable economic system, backed by strong foreign exchange reserves, healthy GDP growth rates and expanding foreign direct investment, conditions are ideal to buy properties in the country’s major cities”.

The Indian real estate market, they said, continued to be on the upswing and for NRIs, it was the right time to invest in properties back home. They pointed out the entry of a number of international real estate houses in India showed foreign investors’ increasing confidence in the Indian market. They noted that 100 per cent FDI was allowed in India’s real estate sector. The companies showcased apartments, independent houses, bungalows, luxury and premium villas, farm houses, commercial properties, beach resorts and plots. More than 100 properties from New Delhi, the National Capital Region, Mumbai, Hyderabad, Vijayawada, Nelloor, Chennai, Coimbatore, Bangalore, Tiruchirapalli, Ooty, Hosur, Gurgaon and similar locations were showcased at the exhibition. The exhibition was jointly organised by Apex Business Solutions and Indus Events and Exhibitions.

US Billionaire Sam Zell’s Equity International Plans Entry into Indian Real Estate

Billionaire Sam Zell is entering the real estate markets in India and Columbia in the next two weeks as he continues to favor international investments over US property deals. Zell, chairman of Chicago-based Equity International, will invest in real estate in Colombia and will eventually move on to residential projects, he told Bloomberg Television. In India, he plans to open hotels.

“In India, we’re doing a hotel/motel program like Residence Inn at Marriott and we hope to build a chain across the country,” he said. Zell, through Equity International, which he co-founded with Gary Garrabrant in 1999, has invested in real estate- related companies around the world, including in Brazil, China and Mexico. His involvement in the US property market is “minimal” amid low interest rates and inflation that he estimates to be as high as 6 per cent, Zell said. Equity International’s first deal in Colombia is a $75 million investment in Bogota-based Terranum Development, a closely held real estate company, according to a statement.

Diwali Surprise: New Home Prices May Fall by 10-15%

That dream home that you have waiting to buy may become a tad more affordable – new home prices could decline by between 10 to 15% by Diwali. Real estate companies that have accumulated huge inventories as sales dipped over the last two years, are under pressure from banks and investors to sell in order to generate revenues. Adding to the pressure is a growing mountain of debt, over Rs 38,000 crore for the top 11 builders.

“The property market cannot sustain the current price levels. Mumbai and Delhi are the most investor-driven markets. This is where the first crack can come from,” says VK Sharma, chief executive officer of LIC Housing Finance, the state-owned insurer which commands a large chunk of the country’s home finance market. A 10% price correction is likely in Mumbai and Delhi around the festival season, as that is the only way to revive sales, Sharma says.

Leading builders say that supply has to increase for prices to come down. “RBI’s rate tightening has resulted in developers not having funds to complete the projects and hence the supply will remain in check, while demand is still intact. For any easing of prices, the secret is to increase supply, not reduce it,” says Niranjan Hiranandani, managing director of Hiranandani Constructions. “Developers will hold onto their stocks, unless someone is over leveraged.” But a consensus seems to emerging among many market participants that the crucial Mumbai and the Delhi-National Capital Region (NCR) markets will correct soon. “A price correction in Mumbai and Gurgaon is bound to happen… There will be fractional break of 15% in the Mumbai market,” says V Hari Krishna, director at Kotak Realty Fund, a private equity arm of Kotak Bank.

“We are keeping our fingers crossed. But in all probability, we will have to resort to a price correction during the festive season when buyers go for new homes,” says a leading builder in the NCR region, who didn’t want to be named. He says his bank is refusing to lend any further and is instead asking him to service his debt by selling vacant apartments, even if that meant cutting prices. So far, builders have managed to avoid doing this, fearing any correction could lead to a crash. Many bank officials and investors ET spoke to say they have increased monitoring of realty projects and are trying to persuade developers to clear inventories. According to data compiled by Liases Foras, a real estate research firm, inventory in the top six property markets in the country has continued to rise over the last few quarters except in Hyderabad.

In the previous quarter, inventory level in Mumbai has grown to 108 million square feet which, based on monthly absorption rates, is expected to take 40 months to clear. In the NCR, the total unsold space rose to 220 million sq ft, 30 months of inventory. And in Bangalore, it has gone up to 27 months from 19. Despite the rise in unsold flats, prices have continued to move up in most of these markets.

At the same time, the debt burden on the builders is constantly on the rise. The total debt that the country’s top eleven builders have to service stood at Rs 38,500 crore at the end of the June quarter which builders have been trying to reduce by selling of non-core assets. “We have reached our real estate exposure limit. We will not be lending more unless there is a large influx of repayments. But I expect repayments to be normal. The NPA level has not gone up, it has stayed at 4-5%,” says TS Srinivasan, general manager, treasury, at Indian Overseas Bank.

“We can only persuade them to bring down their inventories. We cannot force them. Since the markets are such and prices are not going down; inventories are bound to rise. The NPAs from the sector in the June quarter was less than 1%,” explains RK Dubey, executive director of Central Bank of India. Some private equity players say that price cuts are the only way to ensure better sales. “We had gone back to our developer about 6-8 months back and wherever it was possible, we changed the product in terms size and pricing, understanding that it is the absolute pricing of a house that impacts buying decision. Today again, the situation looks a little difficult,” says Sanjeev Dasgupta, president, real estate at ICICI Venture.

M3M Launches Luxury Housing Project in Gurgaon Priced up to 7crore

Real estate player M3M on Friday said it has launched a luxury housing project in Gurgaon comprising 72 units, to be offered at prices of up to Rs 7 crore. The project — M3M Polo Suites — is likely to see an investment of about Rs 130 crore and will be developed inside its another luxury housing complex, M3M Golf Estate. “This new project will be developed on a concept of living with the polo sport and this will be for the first time in India. We want to create a lifestyle here,” M3M India President Kunal Banerji told reporters here. The company will develop 72 housing units in 3 towers in the project and sizes will vary between 4,000 sq ft and 5,000 sq ft, he added.

When asked about the selling prices, Banerji said: “We will be selling the flats for Rs 12,600 per sq ft, which will finally come out to be between Rs 5 crore and Rs 7 crore”. He, however, declined to share any investment figure that the company is likely to put in to develop the project in about 4 acres of land. Industry sources close to the development said M3M will invest about Rs 130 crore in construction of the project.

In order to offer and manage the polo sport lifestyle in the project, the company has tied up with polo player Adhiraj Singh-led Equisport. Commenting on the association, Singh said: “We have tied up with M3M for three years with an option to renew it further. We will offer the residents to enjoy every bit of polo sport”.

Oberoi Realty Ropes in Samsung C&T Corporation for its Luxury Project in Mumbai

Real estate firm Oberoi Realty has brought on board Samsung C&T Corporation as its general contractor for its ambitious mixed-use, high-rise luxury project in Worli, Mumbai. The deal marks the entry of Samsung C&T, which has constructed many of the world’s tallest landmarks including Petronas Towers in Kuala Lumpur and Burj Khalifa in Dubai, in the Indian real estate space.

“This association will enable us to strengthen and grow our vision of bringing the best international construction practices to India and contribute one more landmark to the skyline of Mumbai,” Vikas Oberoi, chairman and managing director, Oberoi Realty, told DNA. To be developed by Oasis Realty, a joint venture between Sahana and Oberoi Realty, the development will feature a luxury hotel, luxurious branded residence (managed by a hotel operator) and high-end commercial office space with a likelihood of luxury retailing area.

The hotel and branded residences, industry sources were quoted as saying, will likely be operated by luxury hotel company, Mandarin Oriental Hotel Group. YeonJoo Jung, president and CEO, Samsung C&T, said the deal was a remarkable milestone for the company as it would be their first such project in India. “We apply extensive experience, expertise and knowledge in construction and project management especially for high rise buildings, therefore the successful completion of this iconic building would also be vital for our future growth in the Indian market,” said Jung.

The Oberoi project is likely to be launched this October. Sources said details of the Oberoi project have not been made public as yet because, “the developer is still in the process of getting a clear picture on the floor space index allocation for it”.

Housing Demand to Remain Strong despite Global Slowdown

Despite slowdown in the global economy, the demand for housing sector will remain strong in the country. But the sector will not witness the kind of price appreciation it has seen in the last couple of years. The global slowdown of economy will have positive as well as negative impact on the Indian real estate sector. Anshuman Magazine, the managing director of global realty consultant CB Richard Ellis, says that on the whole, because of the domestic demand-driven market, the recent developments in the international front will provide good opportunities to homebuyers to fulfil their aspirations to own a house.

Despite marginal slowdown of Indian economy, it is expected to grow at healthy rate of 7.5%, which will not only reduce the impact of the global slowdown but also make it one of the most attractive investment destinations in the world, along with China. Anuj Puri, chairman and country head of Jones Lang LaSalle India, says that midincome residential real estate makes a lot of investment sense. Thus, for long-term investors, residential real estate is quite a lucrative proposition. However, Puri advises investors to avoid plugging money into projects that are in the early stages of completion , since these may be plagued by delays now. The safest bet are projects that are ready or almost ready, he says.

Anurag Mathur, the managing director of Cushman and Wakefield, India, also says that Indian real estate market may be affected, but to a lesser extent. The economy , though closely linked to the global developments , is resilient. Recently, Standard and Poor’s downgraded the sovereign credit rating of the US by one notch to AA+. There is apprehension that the development will affect the Indian economy adversely. However, the downgrade of US economy to AA+ does not indicate any impending default by the country in meeting its obligations in the near future, but it certainly hints at a slowdown of its economy. Besides the US, other developed countries in the Euro zone are also facing a slowdown in the economy. This will affect the export of IT services from India, which contributes to the demand for residential and office real estate in the country.

Anuj Puri says that the recent developments in the US and Europe could impact Indian IT companies, and therefore, the overall demand for IT-specific office space. IT office space may therefore not be very lucrative for short-to-mid-term investors. However, other office-space segments would continue to look good in the long term. But, at the same time, there is a section of banker and industry experts which feels that the outsourcing activities will increase as the profitability of companies in developed world will be under stress because of the slowdown in their economies. Slowdown in the economy coupled with relatively unavailability of funds may force many cash-starved indebted developers to sell their projects to reduce their debt. Many of these developers have borrowed at a huge cost of upwards of 18% to meet their immediate requirements. This, said Puri, may lead to a dip in residential prices in cities like Mumbai.

Reason why Indian Real Estate Lures US NRIs

The favourable exchange rate and the US Federal Reserve’s attempts to tackle a rapidly-weakening economy by freezing shortterm interest rates for two years are two factors that encourage NRIs across the US to divert their investments into more profitable avenues such as property here. According to Chandru Bhambhra, a realtor based in the US in the bay area, in addition to the exchange and interest rates, the need to have a property in India as well as the high appreciation in value influence an increasing number of NRIs to invest in real estate here.

As of now, IT professionals form a major segment of the buyers. Those who are keen on relocating look at cities such as Bangalore as the chances of a job in the IT sector appears better. Whether it is a temporary assignment or a permanent shift in their own organisation, a number of NRIs feel owning a home away from home is a viable proposition both in terms of price appreciation and rental returns. There are two types of prospective NRI property buyers. One is the first-time buyer who is invariably a recent immigrant with a definite period of stay in the US. The second is the investor who is invariably an established professional or successful entrepreneur who has made his fortune during his sojourn abroad.

“The first-time buyers prefer their hometown. Many choose Bangalore for its top class housing and amenities where prices are dictated by market dynamics. A large number look for options in the range of Rs 50 lakhs to Rs 75 lakhs, says Khanderao, Founder, Global Indian Technology Professionals Association, in the bay area in California. There are some looking for a smaller investment. The over-riding priority here is a site. This is mainly a hedge against inflation. MNCs planning to expand their existing operations are looking at commercial spaces. “In addition to the existing MNCs, I expect new companies in the social and cloud computing space to look for expansions in Bangalore,” says Khanderao. MNCs are drawn to Bangalore due to its large talent pool tuned to the same professional culture as in the US.

“Around 70 per cent of the NRIs seek a home loan from the housing finance companies and banks in the US to fund their home purchase in India. This is because they require a longer repayment period and at the same time are keen on closing the loan much earlier than the scheduled period. The intention is to have minimal cash outflow every year in the initial years,” says N Raghavendran, President, Bharathi Tamil Sangham, California.