Teaser Loans Again? SBI Asks Reserve Bank to Allow Sub Base Rate Loans

Mumbai: Piling inventory levels of real estate players in the country on Thursday brought the controversial 'teaser loans' back into focus, with State Bank of India asking the Reserve Bank of India to allow lenders to sell loans below the base rates.

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"I am told that real estate stock is at two-year high and I was thinking if it is possible for a little while... Could something of this (teaser loan) kind could be allowed given the fact that this is one of the portfolio where NPAs (non-performing assets) are the lowest," Arundhati Bhattacharya, chairperson of the country's largest lender, told RBI Governor Raghuram Rajan at a conference here.

Mr Rajan acknowledged the demand, but did not appear very keen to accede and said that the larger need is to push demand by a price cut by the builders.

"I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don't want to create a situation where prices stay high at the level which means demand can't pick up," Mr Rajan said at the second SBI Banking and Economic Conclave.

It would be a "great help" if realty developers sitting on unsold stock bring down prices, he said, adding that once the prices stabilize, more people will be keen to buy houses.

Echoing the need for developers to bring down prices, Ms Bhattacharya reminded Mr Rajan about the teaser loan product, where it used to lend below the base rate, which is the minimum rate of lending. She said the product was able to revive demand in the days after the 2008 crisis.

"In 2008 when the economy started faltering, one of the things that made demand go up was the 8 per cent housing loan that SBI did. Of course at that time it was tagged as a teaser, we in SBI refute that because the due diligence that went in for those loans are the same for other loans as well, even your eligibility was same as regular loans."

"Only thing is that for the first two years the customer is allowed to pay at a lower rate. What did happen was that demand really kicked in," she said.

There was an intense fight between the RBI and the bank over this product and the then SBI chairman O P Bhatt had gone to the extent of saying that the regulator did not understand the product.

Mr Rajan said he believes that if real estate developers, who are sitting on unsold stocks, bring down the prices, it will be a very great help to the sector.

"Once there is a sense that prices have stabilized, more people will be willing to buy. I don't know what the level is and if it is across the country. It is not clear that in some parts of the country, there is excess stock."

"I think we need the market to clear (the excess stock) and with growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier," he said.

Source - TOI 

No room to reduce housing prices: CREDAI

NEW DELHI: A day after RBI governor Raghuram Rajan advised builders stuck with unsold inventories to cut rates, realtors' body CREDAI on Friday said there is no scope to reduce housing prices and demanded that interest rates on home loans as well as taxes should be reduced to boost demand.

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"While we respect the RBI governor's concern over kick starting the real estate sector, it would be prudent to say that from the developers side that a substantial reduction in prices has already happened across the country," CREDAI president Getamber Anand told PTI.

"Any further decrease in sale prices would mean an out of pocket expense for the developers thereby acting as the last nail in the coffin of an industry which contributes so much to the economy and employment at large," he added.

Anand said housing prices have gone down by 15-20 per cent on an average in last two years across India, while input costs have risen by 15-20 per cent.

The Confederation of Real Estate Developers' Associations of India (CREDAI), which has about 10,000 realty developers as members, sought that government should rationalise taxes and circle rates while interest rates on home loans should be cut.

"It is now largely up to the state to rationalise taxes, ready reckoner rates and streamline the approval process to bring down property prices and provide relief to the end user. A rate cut in home loans is the need of the hour to relive the home buyer of the huge burden of mounting EMIs," Anand said.

Real estate sector, particularly residential segment, is facing a huge slowdown for last 2-3 years, resulting in significant delays of up to 6 years in completion of projects.

The CREDAI president added that the industry, on its part, is eager to focus on execution and supply of good quality housing stocks to enable the governments ambition of 'Housing for All' by 2022.

Yesterday, Reserve Bank Governor Raghuram Rajan exhorted realty developers stuck with high inventories to cut their rates even as the country's largest lender SBI sought RBI's nod for cutting home loan rates.

"I do believe that if real estate developers who are sitting on unsold stocks bring down prices, that will be a very great help to the sector because once there is a sense that prices have stabilised, more people will be willing to buy," Rajan had said at the second SBI Economics and Banking Conference held in Mumbai.

According to a report by property consultant Knight Frank India, over 7 lakh housing units remain unsold in eight major cities and it will take more than three years to exhaust the inventories.

The National Capital Region (NCR) market alone had 1.9 lakh unsold homes as of June.

These cities are Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Chennai, Hyderabad and Ahmedabad.

Housing sales dropped by 19 per cent and new launches by 40 per cent during January-June 2015 in these eight cities as compared to the year-ago period.

Source - TOI 

Credai questions govt’s ‘lack of interest’

Panaji: Pointing out that the government collected approximately 216 crore as infrastructure tax from 2009 to 2015, CREDAI - Goa questioned the government's lack of interest in providing necessary infrastructure
like road, water, sewerage and electricity connections to housing and commercial projects. The real estate developer's body also urged the government to implement Regional Plan 2021 in order to avoid confusion in the minds of consumers and real estate developers.

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"The infrastructure tax is collected but the government could not keep its commitment and instead builders are asked to pay charges at every level including for transformers," president, CREDAI, Jagannath Prabhudessai said. "The settlement zones are as per the old regional plan but the rules and regulations are based on the new regional plan. Builders don't benefit from any regional plan but a regional plan is necessary for the real estate industry."

Prabhudessai was speaking at the installation programme for the new office bearers of CREDAI Goa. Besides Prabhudessai, who was elected as the president for a second term till 2017, the other office bearers include immediate past president Nilesh Salkar, vice presidents Gaurang Suctancar and Vinay Bhasin, secretary, Jose Braganza, Rama Naik, A. D Prasad and Haroon Ebrahim.

Prabhudessai urged the government to pay heed to the industry's requests particularly since the housing sector was going through a slump. He refused to be drawn into a discussion regarding corruption within the government and the connection with clearances.

Reiterating the point that getting approvals and clearances was a major reason behind delays in completion for the housing industry, Prabhudessai requested the government to put in place a single window clearance system for the industry.

Source - TOI 

CREDAI to seek govt’s aid in boosting real estate

NASHIK: The Confederation of Real Estate Developers' Association of India (CREDAI), Nashik will seek the government to reduce taxes and speed up the building plan approval and environment clearance process to make housing affordable, in the backdrop of RBI governor Raghuram Rajan advising builders to reduce rates of unsold flats the real estate sector.
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The CREDAI has decided to approach chief minister Devendra Fadnavis in the next couple of weeks to urge him to take some measures for affordable housing. The association's decision comes following RBI governor Raghuram Rajan's advice to the builders to reduce rates of their unsold flats during a banking workshop held in Mumbai on Thursday.

Speaking to TOI, president of CREDAI, Nashik, Jayesh Thakkar said, "The RBI governor had recently advised builders to reduce the rates of unsold flats to boost the real estate sector, which is already facing recession for the past few years. The prices of cement, steel and other materials have increased a lot in the past few years. But instead of increasing the rates, we have already reduced the rates of flats by 10% to 20%, so far. Our profession will be at stake if we reduce the rates further. The central and the state governments have set a target of housing for all by 2022, but it will not be possible unless the government takes some efforts to speed up housing projects and reduce taxation."

He further said, "There is a need to speed up the building plan approval and environment clearance process. The building plan approval process takes more than four months, while environment clearance process takes a year or two. Delay in projects also leads to increase in their cost. The burden obviously goes on the consumers. Moreover, there is need to reduce the rate of interests for housing from the present 9.50% to 8% in the interest of the consumers. Moreover, we have to pay up to 14.5% in the form of various taxes like 5% stamp duty, 1% surcharge under Local Body Tax, 1% labour cess, 3.5% service tax, 1% Value Added Tax and 2% development charges, which leads to rise in property prices. Hence, the government needs to reduce taxation and speed up the building plan approval and environment clearance process if it really wants affordable housing. We have decided to approach CM Fadnavis in next couple of weeks for the purpose."

The CREDAI Nashik is also preparing a presentation on the measures needed by the government to boost affordable housing. Thakkar added, "The presentation on affordable housing is to be given to the CM during our meeting with him."

Source - TOI

Affordable Homes Offer $11.8 Bn Opportunity for Builders: C&W

New Delhi: Affordable home segment presents a business opportunity worth $11.8 billion for developers across seven major cities of the country, according to property consultant Cushman & Wakefield.

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Cushman & Wakefield (C&W) has pegged the demand for affordable housing at 5,35,400 units across Delhi-NCR, Mumbai (MMR), Bengaluru, Chennai, Hyderabad, Kolkata and Pune.

"Affordable housing presents a $11.8 billion opportunity in India across major seven cities, backed by demand in these cities," the report said.

The consultant expects that strong demand pipeline in the top seven cities would drive private sector participation in development of affordable homes.

"Affordable housing demand across seven cities is around 5,35,400 units. Keeping in mind the high demand in this segment, it is time that developers change their perception about affordable housing development, since its success lies in the scale of operations, compared to the middle-income group (MIG) and high-income group (HIG) which have higher margins that drive profits," C&W said.

C&W executive managing director South Asia Sanjay Dutt said urban affordable housing has long been neglected in India due to various reasons such as high land prices, delays in getting approvals and low margins in the segment.

"Now with renewed focus from government, we expect this segment to gather momentum going forward," he added.

To fulfill the need for low-cost housing, the consultant said that the government needs to promote private sector involvement that would play a significant role in bridging the current deficit of low-cost housing in urban areas.

"Till now, private players have shied away from this segment, due to low margins. Incentivizing the sector by making land available, reducing raw material prices, providing additional Floor Space Index (FSI) for such developments etc. are bound to give a thrust to development of low cost housing units," the statement said.

Source : NDTV Profit

Reghupathi commission recommends payment of compensation to apartment buyers

CHENNAI: Justice R Reghupathi commission of inquiry that probed collapse of an 11-storey building at Moulivakkam last year said the other surviving building at the site resembled the ill-fated block "in terms of all short-falls and deviations that contributed to the mishap". The soil is loose, sandy and watery and pile foundations were not laid for a depth of 18 metres. On the reason for the collapse of the building, the report said it was built primarily with a raft foundation and pillars were knocked off to accommodate driveways. Experts who inspected the building detected insufficient concrete settings, cracks and punctures in columns.

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The report said the "present tragedy is a self-speaking parable" and said it was not known how many projects, both completed and under-construction, suffered from similar deficiencies. "The present instance is the best example about the dark-side behind the real estate and construction business where money is considered to be the only ambition and aim, and lives of human beings and customers are put at stake to test the duration of the feeble constructions raised by them.

Noting that regulatory agencies lacked technical experts the commission recommended sweeping changes in CMDA's functioning including setting up of a committee comprising technical experts from CMDA, legal officers and experts in soil investigation, foundation design and structural engineering to carry out field inspections at every stage of construction of mega projects. The committee should inspect buildings at various stages including earth work stage, laying of foundation, basement and concreting of each floor, the report said.

Even though Tamil Nadu government has a directorate of vigilance and anti-corruption, Raghupathi has suggested setting up of a vigilance wing to keep a check on hidden and underhand transactions between officials in the regulatory agency and developers.

As regards the loss suffered by customers who had invested in the ill-fated building and neighbours, whose houses were damaged in the disaster, the commission has urged the government to set up a committee to assess the loss and pay compensation by drawing money from the state disaster relief fund. Buyers were still repaying loans though their apartments were completely razed, the commission pointed out and said it felt the need to go beyond its brief and suggest ways of assuaging their sufferings.

Reacting to media reports that the government and the regulatory agency flouted norms by giving permission for high-rise buildings on a narrow road, the report said, "Prima facie it appears there is no violation on the part of CMDA and the government in recommending relaxation (of norms)."

While developers welcomed most of the recommendations of the commission, they have reservations against retaining money from contractors for 10 years. "CMDA already retains a deposit from developers. Blocking more money as surety will add to project cost," said a city developer.

Source - TOI 

Commercial real estate up, residential down across major Indian cities, says report

MUMBAI: Average transacted office lease sizes across Mumbai, Bangalore, Chennai and Pune have increased from the uncertain times seen in 1Q14 - prior to the general elections, global property consultant JLL India said on Tuesday.

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"Market morale was low in 1Q14, which could explain the lower sizes. Following elections in May 2014, however, market sentiment improved gradually, while Mumbai, for example, witnessed 65% appreciation in average deal sizes between 2Q14 and 2Q15," it said.

The number of transactions also increased considerably across all these cities. Pune leads with 89% y-o-y growth in transacted space per lease deal, followed by Bangalore at 78% and Chennai at 67%. "Occupiers are not only leasing larger office space, but they also expect all the space to be on the same floor. Developers are constructing bigger floor plates to meet the evolving demand," it said.

But residential sector tells a different story. In the same set of cities, residential developers are under pressure owing to sluggish sales and cash flow issues.

"In the past year, apart from marketing tactics such as flexible payment schemes and on-the-spot discounts, average apartment sizes have been falling across all major cities of India. Mumbai and the Mumbai Metropolitan Region witnessed the largest fall in average apartment sizes on an annualised basis at 5%, followed by Bangalore (4%), Chennai (4%) and Pune (1%)," said Ashutosh Limaye, National Director - Research, JLL India

Mumbai's fall in apartment sizes from 2010 to date has been 26.4%. There has been a corresponding reduction in the carpet area. For the same period, Bangalore registered a 23.7% reduction in average apartment sizes, followed by Chennai at 22.2% and Pune at 7%.

"Developers can generally change apartment sizes prior to completing the foundation on the ground without hassles from the plan-sanctioning city agencies. A price correction, on the other hand, is very market-driven. This is a good move by developers, as they have been able to reduce prices and keep the configuration unchanged, despite rising construction costs, approval and finance costs eating into their profits, by reducing unit sizes," said Limaye. 

Source - TOI