Realtors hope for turnaround after home loan rates cut

Ahmedabad

The recent cut in home loan rates has revived hopes of a turnaround in the realty market. Buoyed by the RBI cut in repo rate, city-based realtors expect demand to increase slowly by Diwali. 

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"Unlike other cities in the country, the property prices in Ahmedabad have remained stable over the last three years. No major projects were launched during the period. Now, new projects are being launched. Many existing projects currently have no unsold inventory," said Deepak Patel, president, Gujarat Institute of Housing and Estate Developers (GIHED), which is organizing a three-day GIHED property show in Ahmedabad starting from October 9.

Shekhar Patel, managing director of Ganesh Housing, said the industry is expecting another round of rate cuts before the next budget. "Our economy has started showing positive signs. The rate cuts will certainly help the realty market," he said.

In cities like Bangalore, Chennai, Kolkata, Pune, Mumbai and Delhi, owning a house has become a daunting task for the salaried class. However, as compared to these cities, in Ahmedabad property prices are comparatively cheaper. According to the data released by real estate rating and research firm Liases Foras, at an average cost of Rs 28 lakh, flats in Ahmedabad are still cheaper.

According to Manan Choksi, director of RE/MAX Gujarat, "The average ticket size of each transaction for the first half of 2015 (January to June) was over Rs 3 crore. During this period value of transactions recorded in all the 19 sub-registrar offices of Ahmedabad was Rs 12,500 crore."

During the sluggish period, consumers were in wait and watch mode. "The prices of real estate in Ahmedabad have bottomed out and there is no room for further correction. This is the right time to buy properties as home loan rates have come down now and further rate cuts by RBI are likely," said Ashish Patel, vice-president, GIHED. The excitement among the realty players is evident from the fact that as many 70 reputed builders with 500 projects are participating in the property show and more are likely to join. 

Source - TOI 

What made banks to cut lending rates now?

The quick move by the banking sector to slash lending rates after RBI reduced key policy rates has put up a question: Why banks did not pass on the benefits to the consumers instantly when similar decisions on rate cuts?

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The RBI has cut repo rates by 50 basis points from 7.25 per cent to 6.75 per cent recently, which is a welcome move both for the real estate industry and the banking sector. The RBI has reduced policy rates by 125 basis points cumulatively.

Soon after RBI has made the announcement, the country’s largest lender, the State Bank of India (SBI) has cut down lending or base rate by 0.4 per cent to 9.3 per cent. Currently, HDFC’s base rate is at 9.3 per cent and Axis Bank has lowered its base rate to 9.5 percent.  

Sources said that the government is constantly monitoring the situation of the impact of RBI’s rate cuts in the market. “In fact, there is a pressure from the Ministry of Finance on banks to reduce the rates at which they lend to the industry, and individuals. The banks do not borrow loans from RBI but the banking system depends on deposits so a fluctuation in the lending rates affects the banking sector,” sources told in a condition of anonymity.The real estate sector was expecting such moves by the banks since a long time but things did not turn out positively. The RBI Governor, Raghuram Rajan was concerned about delay in the monetary transmission of rate cuts by the banks. He also said that “the real estate prices need to come down in order to ease lending norms for home loans.”

Such moves also indicate a positive picture and building the confidence level of the consumers in the potential market. It will now boost the investment flow in the sector and increase the sale of unsold inventory stock as well. The banks are usually very cautious while lending to the industry. And, as the demand is less and the macro economic situation is slow in the real estate sector with limited investment possibility, the banks are quite apprehensive in lending the sector. This is a reason why banks maintained a wait and watch approach.

Also, the banks did not pass on the benefits to the consumers because the costs of deposit have gone down. The commercial banks face immense problem if the costs of deposits are less.  The sector is facing a huge slowdown for last 2-3 years, resulting in significant delays in completion of projects. Many stalled projects are not proceeding due to government clearances and bureaucratic hurdles.

The banks already had two years of unsold real estate inventories and home loans in the books of accounts.  In such a condition, the banks were wary about issuing fresh loans to the real estate customers or developers. Moreover, the real estate developers have borrowed money from the non-banking financial companies (NBFC) at high interests’ rates between 21-36 per cent, so, they are already under pressure of high costs of debt.

Now as the banks have cut the rates, the business climate may soon clear up and possibilities are that the sales growth will pick up in the near future. We hope that the RBI’s moves to bring down key rates will likely boost investor’s sentiments in the market.

Source - TOI

SBI home loan customers to get only 50% benefit of cut in base lending rate

MUMBAI: The euphoria over State Bank of India's 40 basis point (0.4 percentage point) reduction in interest rates is likely to get watered down considerably for home buyers. India's largest bank has said that the interest rate on new home loans will be only 20 basis points lower -less than half of the 50 basis point reduction in benchmark rates by the Reserve Bank of India.

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This 40 basis point reduction in the bank's base rate will not fully apply to new home loan customers because the bank has revised the spread at which it will advance home loans for borrowers to 20 basis points above its benchmark base rate as against offering loans at base rate earlier.

Sources said that the bank had taken a decision to revise the spreads to protect its margins since the rate cut has been front-loaded without an equivalent reduction in the cost of funds.

SBI takes lead, lowers EMIs after RBI cuts repo rate

SBI's decision to cut interest rates on new home loans by only 20 basis points is a rare instance where old borrowers stand to gain more than new customers. A woman borrower who had taken a loan in the first week of October would get home loans at the base rate that is 9.7%.

Following the revision in the base rate, the borrower would see her loan rate coming down to 9.3% (base rate) in the next quarter. However, if she delayed taking the home loan to October 5, she will be able to avail the loan at only 9.5%. The lending rates applicable to women will also apply to joint loans where the first borrower is a woman. For all other borrowers, the interest rate would be 5 basis points higher (9.55%).

Sources said that the bank had taken a decision to revise the spreads to protect its margins since the rate cut has been front-loaded without an equivalent reduction in the cost of funds. SBIchairman Arundhati Bhattacharya had earlier suggested that the bank be allowed to come out with a teaser loan-type scheme to incentivize new borrowers. However, the RBI has not been very conducive to the proposal.

Rival lender ICICI Bank has announced a 35-basis-point reduction in base rate to 9.35%.The private bank has, however, not announced the home loan spreads. If the earlier spreads (base rate + 15 basis points) for women and (base rate +20 bps) for other borrowers continue, the home loans would be available at 9.5 and 9.55%. However, if the bank continues to offer loans at a markup to SBI, as has been its strategy in the past, the spreads may get revised. Both ICICI and HDFC were offering loans at 15 bps above SBI rates.

Besides revising spreads on its home loans, SBI has also made high-value Maxgain loans more expensive.

The Maxgain loan is a home loan structured as an overdraft. In this loan, the borrower is not charged any interest for any surplus that the borrower parks in a current account linked to the loan. For a Maxgain loan above Rs 1 crore, interest has been revised to 9.75% for women and 9.8% for men. In a commercial real estate maxgain loan, the interest has been revised to 9.95% for women and 10% for other borrowers.

Source - TOI

RBI Rate Cut to Boost Realty Demand: Bank of America

Mumbai: American brokerage Bank of America Merill Lynch today said the surprise 0.50 per cent cut by RBI is equivalent to a price correction of up to 4 per cent in house prices, and may also help boost the sagging demand.

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"A 0.50 per cent rate cut, if transmitted to mortgage rate, would be equivalent to 3-4 per cent reduction in housing prices," it said in a note, two days after RBI surprised with a 0.50 per cent cut in repo rates.

A slew of banks, including State Bank of India, Axis Bank, Kotak Mahindra Bank, Andhra Bank and Bank of India, among others, have cut their minimum lending rates or base rate offerings in the past two days.

It said housing sales are "strongly correlated" to mortgage rates, income growth and prices, and added that only price cuts can help boost the demand.

Drawing from the experience in 2009 after the financial crisis, it said the 3.50 per cent cut in a three month span had acted as a stimulus to push up demand.

However, it added that the same cannot be replicated at present because of the RBI's stance on rates given the high inflation and tepid income growth.

Hence, a price cut is the only alternative which can lift up the depressed demand, it added.

Source - ET

After RBI cuts rate, realtors want banks to cut home loan rates

MUMBAI: Real estate developers have welcomed the RBI's decision to cut repo rate by 50 basis points, but have also appealed to banks to pass on the benefits to consumers by easing the home loan rates. The reduction in the banks' lending rate is also expected to lower the borrowing cost of builders and ease the pressure on interest outgo.

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"The reduction will have a positive impact on developers' borrowing cost. However, operating performance of these companies should not deteriorate any further as credit ratings have already worsened and resulted in higher cost of borrowing," said Sandipan Pal, analyst, Motilal Oswal Securities. "To see improvement in operational performance of developers, we need more of price correction than interest rate reduction." Realty developers' debt levels have been mounting in the backdrop of low sales for some time now and a saving of 40-50 bps in interest cost would be significant, reckoned analysts. The total debt level of the top 15 listed realty developers stood at over Rs 54,567 crore as on FY15 end, against Rs 50,400 crore during 2012-13 end. Developers are also expecting the easing of cost burden to result in better prices for consumers. "It will be easier for developers launching new projects to pass on the savings on borrowing costs to consumers. These can be significant savings for both developers and homebuyers, given that a project usually takes about two years for launch after land acquisition," said Sandeep Runwal, director, Runwal Group.

 Prior to Tuesday's 50-bps cut, the central bank had earlier cut the repo rate by 75 basis points since January, but the net loan rate reduction by banks so far has not been more than 25-30 points. "This is a helpful move, but was long overdue. We now appeal to banks to pass on the rate reduction to consumers. They can now pass an entire 1% rate reduction to home loans," said Getamber Anand, president, CREDAI. "If that happens, this year's Diwali will see a revival in home sales momentum." Apart from the rate cut, the RBI has also announced that it will lower the risk weightage for lowcost home loans. 

With a view to improving "affordability of low-cost housing" for the economically weaker sections and low income groups and giving a fillip to "housing for all" initiative, the RBI has also proposed to reduce risk weights applicable to lower value but well collateralised individual housing loans, the RBI said in its policy statement. The central bank will separately issue detailed guidelines on this. "Risk weightage for home loans need to be halved to 25% from 50%. And not only for the economically weaker sections but across categories, because the NPA in home loan segment is less than 1% and it's justifiable to lower the risk weightage," said Niranjan Hiranandani, MD, Hiranandani Constructions. 
 

Source - ET

Developers want banks to cut rates

NEW DELHI: The sharp cut in repo rate is expected to give a fresh lease of life to the struggling real estate sector while lowering of risk weight for affordable housing loans is likely to add to the recovery. 

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Developers, who have been saddled with huge inventory, now want banks to cut their lending rates, particularly when the festival season is round the corner.
At present, the minimum risk weight applicable to individual housing loan is 50%. The RBI said it is proposing to reduce the risk weight applicable to lower-value but well-collateralized individual housing loan, in an attempt to improve "affordability of low-cost housing" for economically weaker section and low-income group and give a fillip to "housing for all". 
The general perception in market is that banks must cut lending rates to ensure a recovery in the real estate sector.
"We are hopeful that banks will take the cue and pass on the benefit to the end-user, which will trigger a rise in demand for housing ahead of the festive season," said Navin Raheja, chairman, National Real Estate Development Council.

SBI has already cut its base rate by 40 basis points to 9.3%. ICICI Bank has also expressed its intent to cut rate in due course. HDFC Bank cut its rate in the first week of September to 9.35%. Developers, however, feel rates should fall below 9% to enthuse buyers.

The 40 basis points cut effected by SBI will give a relief of only 2.8% in EMI to Rs 45,955 on a Rs 50 lakh loan for 20 years. A half a percentage point rate cut (50 basis points) will lead to reduction in EMI by only 3.5%. This means, on a loan of Rs 50 lakh for 20 years, EMI will come down from Rs 47,262 to Rs 45,631 if the interest rate goes down from 9.7% to 9.2%.
So, buyers feel that interest rate should be cut by at least one percentage point (100 basis points), which will give a relief of 6.8% in EMI. In 2015 calendar year, RBI has already cut repo rate by 1.25 percentage points in four tranches, but so far, banks have cut their rates by around 0.5 percentage points only.
Another key issue is whether developers will reduce prices or not. They say there is no scope to cut price as they are selling at the lowest possible price. "At the present price level we are hardly making any money," said Getamber Anand, president of Confederation of Real Estate Developers' Associations of India. Underlining the importance of availability of cheap fund, Anand said RBI must impress upon banks to cut lending rates. 
However, developers and investors are saddled with large inventory. So, in the coming festive season, developers in markets such as Mumbai, Banguluru and Pune are likely to offer large discounts and freebies to push sales and clear inventory.

Source - TOI