Since the last few months there has been some activity in the housing market as buyers have found themselves returning after a hiatus. To augment sales and increase their home loan portfolios, public sector banks, led by State Bank of India, lowered their interest rates especially for the affordable home sector. Now, there seems to be war of sorts with two large private banks HDFC and ICICI Banks announcing rates at 8.25 per cent for two years for homes up to Rs 30 lakhs.
The question arises about whether this is a good time to buy. “Property prices have moved up a bit since June 2009 as the demand had picked up. But I feel it is still a good time to buy if one is buying for one’s own use. The cost of acquiring a property came down significantly from its peak levels of 2008 due to a combination of factors such as drop in prices, lower specifications and reduction in size of units. These are major factors, which have led the Indian real estate industry to bounce back. Interest rates have also softened which is bringing in a lot of prospective buyers who were waiting to buy a home. Over the past couple of months, developers have seen an increase in sales inquiries; this is reflected in our September 09 numbers.”
It will be very good for buyers as there are many in the affordable sector waiting to take a decision. Private banks had to follow suit as SBI with its first step has taken away quite a chunk of business. Borrowers have also shifted to the public sector banks from private banks. The banks having sufficient money to disburse are forced to take this step. Most are giving 6-7 per cent interest on fixed deposits so they still earn about two basis points on their home loans at 8.25 per cent. RBI is already talking of rolling back stimulus and tightening liquidity in the market to control inflation.
Most banks were conservative in lowering interest rates and their targets have not been achieved. People too have become conservative about going for a big purchase these days, which they would continue for a long time. Hence private banks getting into the fray was inevitable.” Mohanani also feels inflationary pressures are building up and some pockets have seen increase in pricing. So people should take decisions.
The home loan interest levels reflect market confidence at a primary level, and facilitate the efforts of prospective buyers to make their dream homes come true. So any move that reduces home loan interest rates in effect, impacts the EMI – in terms of lowering the same – so many a fence sitter would feel it worthwhile to go in for his/ her dream home.” A home seeker who is still awaiting a reduction in prices may find the wait counter-productive, regardless of whether prices reduce, the interest rates seem set for a rise. It would make sense to lock in the home purchase at current price and interest levels.
Property consultants are also happy with this move but are cautious. This seems to be the last leg of stimulating the housing sector as the finance ministry and the Reserve Bank of India is in the mood to roll back some of the measures. After January the RBI could increase the credit reserve ratio, which would put some pressure on the banks. This would definitely bring in activity in the market. But it would be nice if banks take some innovative measures to keep this going for the next four to five years to at least cushion the borrower for one fourth or one third of his loan tenure, which could be from 15 to 20 years. It is important that banks, government and the developers take a collective view on affordable housing.”
However despite the guarded optimism they feel that this is the best time to buy homes, with everyone working to attract customers.