Indian housing sector witness growth by 12-15%

In the past few months the banks and the housing finance companies have been reducing interest rate on house loans. The effect of the cuts is now visible as the Indian housing sector has started showing increase in growth with a marked increase in the number of transactions for the last quarter of fiscal 2009.

As per information by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) by the end of March 31 there has been increase in the number of residential transactions by 12-15%. Leading realty players confirmed to Sunday ET there has been certainly increase in demand in the last couple of months, especially in March.

Rajeev Talwar, group executive director, DLF told, DLF, India’s largest realty player, has been able to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price.

Unitech company spokesperson told that, Unitech had launched two of its affordable projects last month in Delhi NCR and Chennai, too has witnessed an enthusiastic response from buyers. The developer managed to sell off 750 apartments in Uniworld Garden II in 45 days of its launch. Unitech official also claimed there another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards was also able to sell off 500 apartments in 10 days.

As per information provided by Niranjan Hiranandani, MD, Hiranandani Developers in Mumbai, in last 40 days the company has been able to sell more than 2,500 apartments.

Banks too have confirmed the increase in home loan takers. Leading banks informed Sunday ET spokesperson that business home loan segment has witnessed an estimated growth of 10-15% in Q4 against the previous quarter.

Kamlesh Rao, executive VP, Kotak Mahindra Bank pointed out, “In the sub-30 lakh category, the industry is seeing a higher growth of around 10-15%. However, we are major players in the Rs 30 lakh and above category of home loans, wherein a growth of around 5-10% has been observed.”

An anonymous senior official from IDBI Bank confirmed the trend.

Home loan scheme unable to attract borrowers

It has been two months the public sector banks (PSBs) have reduced interest rates of home loans up to Rs 20 lakh, but according to records of PSBs only 28,000 proposals have been cleared and around Rs 1,550 crore have been distributed under the special scheme announced by the banks.

According to data compiled by industry bodies and the government Punjab National Bank (PNB) India’s second-largest public sector bank has cleared only 35 loan proposals and has distributed Rs 1.70 crore under the scheme. While the State Bank of India (SBI) country’s largest lender has approved around 6,500 applications.

A special loan package pushed by the government to stimulate growth in real estate public sector banks announced freeze on interest rates on home loans up to Rs 5 lakh at 8.5 per cent for five years. Therefore for loans between Rs 5 lakh and Rs 20 lakh, the rate was freeze at 9.25 per cent. SBI moved ahead and reduced the rate further to 8 per cent for a year and others such as Central Bank of India followed on the line.

In addition borrowers can take loan of up to Rs 5 lakh by paying 10 per cent upfront and in case of home loans of Rs 5-20 lakh, and the upfront payment has been fixed at 15 per cent compared to 25-30 per cent for other loans.

Bankers pointed out that buyers are expecting real estate prices to fall further, thus many are deferring a purchase for the moment.

"Real estate firms are grappling with a sharp drop in demand and mounting debt repayment. They will have to reduce prices substantially to clear inventory. Once that happens, we may see some improvement in response," said a senior public sector bank executive.

Banker added although prices have come down by around 30 per cent in certain pockets, but buyers are more worried about the equated monthly installments (EMIs), which will drop down only when the real estate prices dropped more. "Interest rate is a smaller worry," said a bank executive. "With the economic slowdown, many buyers prefer to stick to rented accommodation instead of purchasing their own apartment," another executive said.

Moreover, many banks are not interested in giving out home loans under this scheme as they are worried over their cost of funds. According to analyst at a Mumbai-based brokerage funds being raised at higher costs, public sector banks will feel pressure on their spreads if they hawked the special scheme too aggressively.

Besides the cost of funds, banks also have to accept the cost of providing life insurance cover to the borrowers. Moreover they the banks cannot charge any processing fee, which adds to the overall cost.

Bankers added that even for normal home loans, demand has slowed down in a hope of further reduction in real estate prices. As per the data provided by the Reserve Bank of India, the growth in housing loans has dropped to 8.8 per cent for the year up to December 19, 2008, in comparison to a year-on-year rise of 14.8 per cent in the period up to December 21, 2007. In the year up to December 19, 2008 banks have been able to sanction home loans of Rs 21,989 crore, as against Rs 31,780 crore in 12 months ended December 17, 2007.

LIC Housing Finance cuts lending rates for new borrowers by 100 bps

After banks now the housing finance are reducing lending rates for the borrowers. LIC Housing Finance (LICHF) has announced a cut in lending rates for new borrowers by 100 basis points across various loan categories. After this cut home loans up to Rs 30 lakh, irrespective of the tenure, will get cheaper by 100 bps at 8.75 per cent, whereas for loans above Rs 30 lakh, the rates have reduced by 9.75 per cent as against 10.75 per cent earlier. The new rates have come into effect from February 1.

LIC Housing Director & CEO R R Nair remarked, “Earlier, similar loans with tenure up to five years charged 9.25 per cent and loans with tenure between five and 20 years attracted 9.75 per cent. Now we have decided to aggregate the two schemes and charge same interest rate”. Around 80 per cent of LICHF’s loans come under the Rs 30-lakh category, with an average loan size at Rs 16 lakh.

Meanwhile after the meeting with acting Finance Minister Pranab Mukherjee, many public sector bank chiefs, including UCO Bank and Corporation Bank, had signaled a cut of 50-100 bps in lending rate.

State Bank of India has already announced 8% cut on home loans for a year, irrespective of tenure and amount.

The offer announced by the SBI does not provide any benefit to the existing borrowers but it will be reviewing the decision on April 1.

Nair said, “We have passed on the benefit of incremental reduction in costs to the new borrowers. We always take a quarterly review of the lending rates for the existing borrowers, as we take into account the average cost of funds which is next due in April”.

Earlier on January 1, the company had announced cut in lending rates for existing borrowers, which is at present in the range of 10.75-11.25 per cent, by 75 bps.

In December quarter, the firm attained a 26.70 per cent rise in net profit at Rs 134.33 crore and distributed Rs 1,944 crore. The firm’s total borrowing in 2008-09 fiscal year would go up to Rs 11,400 crore as compared to Rs 7,490 crore last year.

Nair added, “The repayment outgo has increased with rising costs, so our borrowings for FY09 have increased. We have already borrowed Rs 8,800 crore in FY09 and we would require another Rs 2,500 crore to support our annual disbursement target of Rs 10,000 crore.”

Home loans still not within reach of borrowers

After the Reserve Bank of India and the government directed banks to cut down the lending interest rates, in spite of that people are facing problem in taking a home loan. The reason being banks are openly insisting that borrowers are required to contribute 20-30% of the value of the property, instead of 10-15% earlier.

Banks finance proportion has also come down from 85-90% of the property value to 70-80%, therefore borrowers (mainly the younger lot) are finding it difficult to go for a home loan.

Recently SBI has brought down its home loan rate to 8% and free zed for one year. Therefore the bank will lend only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. In case the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. In fact, Punjab National Bank (PNB) is lending 75% of the loan for a property of above Rs 20 lakh.

Other PSU banks like Union Bank and UCO Bank are also lending only up to 80% of the value of the house. On the other hand private sector banks like ICICI Bank are asking for 20-30% buyer's contribution while giving a home loan.

In metros like Mumbai, Delhi/NCR Bangalore the average price of a three-bed room apartment is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. Hence the buyer's contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. This is acting as a big restriction for a young buyer especially in the age group of 30-35 years.

But the bankers are not really bothered. UCO Bank executive Director TM Bhasin told as real estate price are coming down, banks have increased the buyer's contribution with a view that the market value of the property should not fall below the loan amount during the course of repayment. He pointed out if the bank gives 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will be more than the value of the property taken as security. In such conditions, the borrower can decide to walk off surrender the house to the bank and like this bank will be able to recover the money by selling the property. To avoid such conditions, the bank has increased the buyer's contribution.

This factor played a very big role in the current US crisis. The banks have given up to 90% of the value of the house. But when the market price fell below the outstanding loan amount, the borrower decided to surrender the house to banks, which in turn are finding it difficult to sell them to recover money.

Banks have also tightened the norms related to a loan. Previously, they used to allow an EMI of up to 50% of monthly income of the borrower. But now, this has been reduced to 40%, this has made difficult for the borrower.

HDFC new home loan rates for limited period

On Friday HDFC leading mortgage lender posted new loan rates under which the loan amount up to Rs 30 lakh will carry interest of 9.75 per cent and above Rs 30 lakh will attract interest of 10.75 per cent per annum.

The rates have come into effect from Friday, and the offer is valid for limited period. In a statement released by HDFC stated the new offer will be applicable for new floating rate home loan customers.

On the other hand the bank reduced its deposit rates in the range of 0.50 per cent to 0.75 per cent.

HFCs set to slash rates on sub- Rs 20 lakh loans

New Year brings good news for new home loan borrowers. New home loan borrowers, with a loan size of less than Rs 20 lakh, will probably get cheaper loans from institutional lenders from January 1, 2009. The second-tier specialized housing finance companies (HFCs) following the footsteps of the leaders too, are introducing special home loan schemes for the sub-Rs 20 lakh loan category. With this large section of fresh home loan takers get benefited.

Second-step HFCs, which are planning to slash rates, include Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance, among others. They might reduce interest rates by 1-1.5 percentage points as compared to their existing rates for loans up to Rs 20 lakh.

These lenders also have plans to reduce rates for existing borrowers, although by a lesser extent. GICHF, with a home loan portfolio of Rs 2,800 crore, has decided to reduce interest rates by 1-1.5 percentage points for fresh borrowers. Therefore for loans below Rs 20 lakh, it will be charging 10.25% per annum for 5-15 years and 10.5% per annum for over 15 years.

On the other hand DHFL, with a home loan portfolio of around Rs 5,000 crore, is yet to finalize its plan. According to information received from the sources, it might offer special rates, too, for the both sub-Rs 20 lakh and sub-Rs 5 lakh loan categories. It is a subsidiary of DHFL Vysya Housing Finance, also plans to introduce special rates for new home loan takers.

These players have taken the indication from public sector banks and the market leader Housing Development Finance Corporation (HDFC). Following the government’s instruction, public sector banks have introduced a concession rate of 9.25% for home loans below Rs 20 lakh and 8.5% for loans less than Rs 5 lakh. HDFC the home loan leader has announced a floating interest rate of 10.25% for loans up to Rs 20 lakh and 11.25% for loans above Rs 20 lakh.

National Housing Bank (NHB), which offers refinance support to HFCs, has offered a special Rs 4,000-crore refinance facility at 8% annual rate. It is also offering a Rs 2,000-crore refinance support for loans against rural housing projects.

“As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1,” GICHF managing director M Sivaraman told ET. However Industry players are of view that NHB facility would be given only against fresh lending. So, the benefit of the soft rates will be limited to fresh loans. GICHF, for instance, will reduce its interest rates for existing customers by 0.25 percentage points.

According to DHFL Vysya Housing Finance managing director R Nambirajan, the company will be cutting its rates by 0.5 percentage points for existing borrowers across the range. “Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates,” he said.

While on Tuesday NHB CMD S Sridhar said, “As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers.”

Govt banks to offer up to 9.25% on home loans

After RBI efforts to bring down the inflation by cutting the repo and CRR the state-run banks are willing to lower interest rates on some loans to home buyers and small businesses as part of a government initiative to boost the demand in mid of a global crisis but analysts are of view that high real estate prices will reduce the demand.

O.P. Bhatt, chairman of State Bank of India, India's biggest bank informed government banks have agreed to offer interest rates of 8.5 percent on new home loans of up to 500,000 rupees and 9.25 percent for loans between 500,000 to 2 million rupees. "The thrust is economic stimulus," Bhatt said at a conference. "The concern is to stimulate (the) economy, to create demand."

He anticipated the home loan package can result in the disbursement of 150 billion to 200 billion rupees worth of loans by June 30, 2009, by the end of the scheme.

"This will not have much effect on margins," S.K. Goel, chairman and managing director of UCO Bank, said. "The revenue that the bank will get will be affected by 2-3 basis points."

Bhatt further explained that the interest rates will be frozen for five years, after which the borrowers can opt for fixed or floating rates.

Bhatt added the banks will require a margin of 10 percent for loans of up to 500,000 rupees whereas for loans between 500,000 to 2 million rupees it will need a 20-percent margin.

A banker pointed out till now the banks have been offering these loans at interest rates ranging from 10-11.25 percent with margins sometimes as high as 25 percent for both categories.

Bhatt further added now these home loans will have no pre-payment or processing charges and the borrower will get the benefit of a free life insurance cover for the entire loan outstanding.

Official maintained that home loans below 2 million rupees constitute more than four-fifths of the mortgage portfolio of state run banks.

Bhatt said in a correlated move to boost economic activity, the banks are also planning to cut rates on existing and fresh loans to micro industries by 100 basis points effective immediately.

He added that small and medium enterprises will have to pay 50 basis points less on loans up to 100 million rupees.

It is expected that these moves by the state-run banks will follow a push of measures by India earlier this month, including $4 billion extra fiscal spending and a cut in key lending rate by the central bank to 6.5 percent, the lowest in two-and-a-half years.

Although analysts have welcomed the rate cuts but are sounding caution about the still-high real estate prices.

"Before lending starts, property prices should come down and cost of funds of the banks should come down. It will take 3-6 months for the cost of funds to come down," said Vipul Shah, an analyst at KR Choksey Shares and Securities.

Over the past five year the real estate industry was booming but from few years the real estate industry has been battling unenthusiastic sales, with purchases falling by a fifth in the first half of the year, as inflated property prices and decade-high interest rates brought an end.

"It may not be sufficient considering the overall economic downturn and high realty prices," said Hitesh Kuvelkar, associate director, research, at First Global Securities.

Though most real estate developers have cheered the move and hoped demand will pick up on softer interest rates and property prices.

While expressing his views Sanjay Chandra, managing director of Unitech Ltd said, "This will encourage a lot of people to buy and the next few months will be good for the sector".