Real estate experts expect raise in home loan ceiling for metros

Within months the inflation has gone very high, run-up of April monetary policy has been taken over by the discussion on repo rate as it is expected that there are possibilities of increase in either the repo rate (the rate at which the RBI lends to the banks) or Cash Reserve Ratio (the amount of funds that banks have to keep with the RBI) but it is for sure regarding the home loan rates that either they will remain where they are or go up further.

Deepak Parekh, Chairman, HDFC, in an interview with The Indian Express said, “it is most likely that there will be an upward revision either in the CRR or repo rate and so the home loan rates could go up marginally.”

Other than this there is one more factor which is causing greater concern, especially among real estate players and the others involved — the Rs 20 lakh limit for priority sector lending. According to them there’s need, to revise the upward limit from Rs 20 lakh or introduce a differential limit for Tier I, II and III cities so that home buyers in larger towns can also avail benefit. Another suggestion they gave is to increase the tax benefit limit of Rs 1.5 lakh for the interest component paid on a home loan.

Anuj Puri, Managing Director, Trammel Crow Meghraj, a multinational real estate consultancy, said: “There are properties within the Rs 20 lakh limit in smaller cities but home buyers in larger cities are getting little benefit from it. I think there should be differential limits based on the tier of the town — like Rs 45 lakh for Tier I, Rs 25 lakh for Tier II and Rs 15 lakh for Tier III cities. The tier classification can be based on the population of the town. Also the tax benefit limit of Rs 1.5 lakh on the interest component repaid should go up. This will bring down the post-tax interest cost for home buyers.”

The other big players of the industry also have the same view. Rajeev Talwar, Group Executive Director, and DLF, said: “Property prices have risen due to a supply gap created as a result of land not being released. There is need for Government to raise the limit for priority sector lending from Rs 20 lakh if they want the credit offtake to go up. Also the limit on tax benefit should be raised from Rs 1.5 lakh. The basic idea should be to allow the economy to flourish and there should be no artificial barrier.”

As per the rules presently, home loans up to Rs 20 lakh fall under priority sector lending across the country. But in recent years, there has been an incredible increase in the property prices across the cities. Then the prices also vary widely from city to city. At the same time the properties under Rs 20-25 lakh are available in Tier II and Tier III cities, therefore it’s difficult to find properties in this range in metros like Delhi and Mumbai.

According to an industry expert “almost 60 lakh individuals have taken home loans and almost 50-60 per cent of these transactions fall within the Rs 20 lakh bracket. Most of these small ticket loans are in smaller towns while in metros and larger towns; this percentage falls to 15-20 per cent.” This is primarily due to the high property prices in larger towns. Therefore the policy of keeping small-ticket home loan rate low is not benefiting borrowers, especially in the metros. Experts are of the view that it is time for RBI to revise the limit range and frame the policy in a way that meets requirements of home buyers across the country proportionately.

Nevertheless, banks have uniform slabs across the country. “Banks need to have categories because of the risk weight age assigned to the size of the home loan, as directed by RBI,” said Parekh. As per current guidelines, banks are required to assign a 50 per cent risk weight age to home loans of up to Rs 20 lakh. And if the loan amount crosses Rs 20 lakh, the risk weight age assigned by the bank rises to 150 per cent. In turn this raises the bank’s cost of lending to borrowers purchasing higher-priced properties.

It is also being expected due to dynamic changes in the market and increasing property prices in metros and bigger cities there is a need to revise the home loan slabs.

Two years before, even in a large city Rs 20 lakh used to be a respectable amount to buy a decent sized house. With the boom in property prices have risen steeply.

Asked about the need to revise priority sector slabs, a senior RBI official said: “We always keep reviewing policies as per evolving situations.” Earlier in April 2007, RBI had reduced the risk weight age for home loans of up to Rs 20 lakh from 75 per cent to 50 per cent.