Government can Broaden Relief on Home Loans

December 18, 2008	(1 votes, average: 4 out of 5)  Loading ...
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When public sector banks had announced concessional interest rates on home loans on Monday, developers and huge sections of consumers were not too enthused, since the relief applied only to loans of up to Rs 20 lakh. Now, the government is considering a proposal to broaden the “differential” interest rate regime even on home loans exceeding Rs 20 lakh. Such loans may be split into two parts, where concessional interest will be charged on the first Rs 20 lakh and market rate on the remaining amount. At a meeting with Planning Commission deputy chairman Montek Singh Ahluwalia and finance ministry officials on Wednesday, real estate players demanded progressive slabs on interest rate for home loans. Realty representatives were of the view that banks should extend the relief on interest rate on home loans beyond Rs 20 lakh.

They suggested that banks could charge reduced interest rate of 9.25% on the first Rs 20 lakh and the exceeding amount could be charged at existing market rates. Real estate players, under the aegis of National Real Estate Development Council (NAREDCO), apprised Ahluwalia and other officials of depleting demand and liquidity crunch. They sought credit and increased overseas borrowings but the government made it clear that it would not tinker with the monetary policy again and again to restore real estate boom.”Monetary policy cannot be operationalised to restore real estate boom,” a senior finance ministry official said at the meeting. The real estate players urged the government to further cut interest rates on home loans and restructure debt of developers in order to boost demand in the sector. The developers made it clear that there was no scope to cut prices from the present levels. They argued that they were catering to those in metros with an income of over Rs 10 lakh per annum and affordable housing, according to them, was a flat costing Rs 35-Rs 50 lakh.

In a blunt reply to the realty players and echoing the common man’s sentiments, Planning Commission member Kirit Parekh said, “I can’t buy a home in Delhi without black money.” The grouping also asked for one-year moratorium on repayment as part of restructuring of debts besides demanding revision of upper limit in the recent home loan package announced by PSU banks to Rs 30 lakh from Rs 20 lakh. The builders also demanded that interest should be brought down to 6.5% for loans up to Rs 5 lakh, 7.5% for loans in the bracket of Rs 5 lakh to Rs 30 lakh and 9.5% for borrowings above Rs 30 lakh. The high-profile meeting accepted that the sector needed stimulus and the plan panel chief asked the developers to come up with specific demands by Thursday. According to sources, Ahluwalia said he would forward the suggestions to Prime Minister Manmohan Singh who has instructed the cabinet secretary to work out a package for the real estate sector. After the meeting, Ahluwalia said the realty players explained their issues and different government departments would consider what could be done. The real estate developers told the meeting that transactions had come down by 80%, prices were on a downward trend and new projects were not taking off. The builders, highlighting that 35% of construction cost went in taxes, said banks were not lending to real estate developers which had created severe liquidity crunch in the sector.

News Published Under:   Home Loans |

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