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Indian Real Estate News
Cut in home loan interest rates will spur demand in the housing sector
Source: TNN Sep 29, 2012
A huge impetus to the real estate sector could help arrest the present slowdown in the economy to a projected growth rate of around 6% in 2012-13 as against 6.5% in 2011-12 and 8.4% in 2010-11, real estate experts say.

In 2008-9 also, when India's growth had slowed down to 6.7%, from 9.3% in the previous year, the revival of the real estate sector due to launch of houses in the affordable segments led to a turnaround in the economy , which saw a growth rate of 8.4% in 2009-10 .

Lalit Kumar Jain, president of real estate developers ' body Credai, says that a revival in the real estate sector will have a positive impact on 250 industries. Jain, who is demanding that real estate sector not be meted step motherly treatment by the government, says that if the sector is given what it deserves, it will help revive the economic growth in the country.

As the home loans given by banks to homebuyers are backed by solid collaterals, the chances of default by borrowers are very low.

But still, as the banks are discouraged by the RBI in giving home loans, they charge high interest rates, in the region of around 10%. Jain says that whatever non-performing assets have been created in the homeloan sector, it is mainly due to delay in the payment of installments. But, overall, there are hardly any cases where banks could not recover their money in the housing sector. Jain says that, therefore, banks should charge an interest rate of 7% on home loan. In fact, as the net loss due to non-performing assets in the home-loan segment is almost nil, banks should lend at the rate equivalent to cost of funds including the administrative charge. If home loan is brought to 7%, there will be a spurt in demand in the housing sector, which will help revive the economy. In fact, if interest rate on home loan is brought down to 7% from the present level of around 10%, an individual's borrowing capacity will go up.

If the interest rates fall by around 3 percentage points, an individual's borrowing capacity will go up by almost by 25%. That means, with the same EMI, he can borrow almost 25% more at 7% interest rate than he could have borrowed at 10% rate of interest.

Getamber Anand, officiating president of Credai, NCR, says: "An interest rate cut will trigger a boom in the real estate market and is sorely needed to support this sector. This has the potential to kick-start nearly 300 affiliate industries, which can contribute to the IIP. To aggressively kick-start this sector and uplift the sentiments of the retail customer, this rate needs to be brought down to a single-digit figure."
At the same time, the RBI should allow banks to lend to developers directly. This will not only bring down the cost of funds for developers, but will also increase the supply of apartments and houses in the market. This will create competition in the market and help in containing the prices of residential units.
A stark example that a better supply of apartments helps contain the prices is the Noida-Greater Noida market. Compared to Gurgaon, the prices in Noida market are less than half despite the fact of Noida having better infrastructure and being closer to central and South Delhi than Gurgaon, which is an important yardstick in the capital value of an apartment.
Farther an area from central and South Delhi, lesser is the price of an apartment. But for Gurgaon, this is not true. Jain said that the Union financial services secretary D K Mittal has asked commercial banks to focus on funding partially completed projects on a priority basis and on development of projects in small towns.

Presiding over a joint meeting of Indian Bankers Association and the apex body of developers, Credai, Mittal asked the realty industry to conduct a survey of unsold housing stock in cities in batches, so that a decision could be taken on unlocking their value.

Tag: Indian real estate, property in india, home loans in India
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