Home loan in­ter­est cut

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mu­niesh­wer A Sa­gar mu­niesh­­gar@hin­dus­tan­ ■

For five years, the hous­ing sec­tor has been strug­gling with a slow­down. The de­mand is low and price cor­rec­tion the norm. Then came the de­mon­eti­sa­tion of higher value notes, which dashed any hopes of a quick mar­ket re­vival. The mar­ket sen­ti­ment, which was sub­dued, be­came more pes­simistic. For the sell­ers, in­clud­ing devel­op­ers, price cuts en­sued, and for the buyer, liq­uid­ity crunch be­came a con­straint in buy­ing cheaper prop­er­ties. The de­mon­eti­sa­tion forced all mar­ket stake­hold­ers into a wait and watch mode. For most realty ex­perts, the only way out of the pes­simistic realty sit­u­a­tion rested on fi­nan­cial in­sti­tu­tions mak­ing cheaper credit avail­able and cut­ting home loan in­ter­est rates to give a boost to de­mand in the sec­tor. This week, these hopes started ma­te­ri­al­is­ing as fi­nan­cial in­sti­tu­tions, in­clud­ing banks, be­gan slash­ing home loan in­ter­est rates. The largest bank in the coun­try, State Bank of In­dia (SBI), re­vised its home loan in­ter­est rate from 9.1% to 8.6%. Home loans up to R75 lakh, ear­lier avail­able at 9.1%, can now be bor­rowed at 8.6%. For more than R75 lakh, the rate will be 8.65%, against 9.15% ear­lier.

Most other banks have also slashed home loan in­ter­est rates. ICICI Bank cut it from 9.1% to 8.65%, new HDFC Ltd rates vary from 8.65% to 8.7%, and Pun­jab Na­tional Bank rates are from 8.45% to 8.5%. Loan rates are lower for women than men.

In six months, banks and other fi­nan­cial in­sti­tu­tions have re­duced home loan in­ter­est rates by 0.5% to 4.5%. Most banks have re­duced the MCLR (mar­ginal cost based lend­ing rates), while the base rates re­main un­changed.

Bet­ter for buyer

“For the home buyer, it is all fall­ing in place. First, the five-year mar­ket slump com­prised sharp price cuts. Then the cash el­e­ment in realty trans­ac­tions, which used to add a size­able value to the mar­ket price, be­came de­funct after the de­mon­eti­sa­tion pol­icy was an­nounced. This made hous­ing more af­ford­able. With banks and other fi­nan­cial in­sti­tu­tions re­duc­ing in­ter­est rates on loan, own­ing a home is be­com­ing eas­ier,” says Prakash Soni, 42, a se­nior ex­ec­u­tive in a pri­vate sec­tor bank and a prospec­tive home buyer. This is es­pe­cially the case with the first-time buy­ers or buy­ers avail­ing new home loans. They are charged in­ter­est rates based on the MCLR. For older bor­row­ers, who bor­rowed be­fore April 2016, the monthly in­stal­ments were linked to the ear­lier bench­mark rate, the base rate. They would now have to get their loans linked to MCLR.

The home loan in­ter­est rate cuts trans­late into sav­ings for the home buyer on the equated monthly in­stal­ments (EMI) and on a to­tal loan amount to be re­paid. For in­stance, for a loan of R50 lakh with du­ra­tion of 15 years, and in­ter­est rate of 8.6%, the home buyer will pay an EMI of R49,530. At the ear­lier rate of 9.1%, he was pay­ing EMI of R51,011. Over the full ten­ure of the loan, a home-buyer is ex­pected to save

R3 lakh.

Rate cut im­pact

The home loan in­ter­est rate cuts are ex­pected to bol­ster de­mand in the sec­tor. “But don’t ex­pect the de­mand to in­crease in the short term. At least till the start of the new fi­nan­cial year, most buy­ers are ex­pected to adopt a wait and watch ap­proach. In Pun­jab, the assem­bly elec­tions are sched­uled on Fe­bru­ary 4 and most home buy­ers are ex­pected to wait till the new govern­ment is formed in March for mak­ing fresh in­vest­ments in the sec­tor. Realty stake­hold­ers will also pre­fer to wait for the Union bud­get be­fore they make their next realty move,” says Bhupin­der Singh, 49, an SAS-Na­gar based real es­tate con­sul­tant. So, for most realty ex­perts, the im­pact of the home loan in­ter­est cuts is ex­pected to be felt only in the medium and long terms.

“The im­me­di­ate im­pact on the hous­ing sec­tor of the rate cut is the boost to mar­ket senti- ment. Peo­ple now have an idea of the tra­jec­tory of mar­ket move­ment and are also con­sid­er­ably as­sured that the govern­ment and the fi­nan­cial in­sti­tu­tions are mov­ing on ex­pected lines. Ear­lier, after the Re­serve Bank of In­dia kept the in­ter­est same and in­tro­duced a cap on banks re­leas­ing newly added de­posits in the mar­ket, there was un­cer­tainty in the sec­tor,” says Singh.

Realty ex­perts say more rate cuts are ex­pected in the near fu­ture as banks are flooded with de­posits after de­mon­eti­sa­tion was an­nounced and it is im­per­a­tive for de­mand re­vival in the hous­ing sec­tor. Mar­ket fun­da­men­tals of mismatch be­tween what is avail­able in the hous­ing mar­ket and the de­mand na­ture will also im­pact any hopes of mar­ket re­vival. Most of the de­mand is con­cen­trated in the bud­get and af­ford­able hous­ing, but, sup­ply is con­cen­trated in the above Rs 50 lakh bracket.

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