Demand for home loans continues to be passive

Demand for home loans continues to be passive
The Hindu Business Line, February 07, 2009, Page 6

Reduction in interest rate alone may not drive demand, say bankers.
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The sluggish demand is an issue between homebuyers and builders, and banks have nothing to do as long as prices remain on the higher side.
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G. Naga Sridhar, Hyderabad, Feb. 6

Banks are yet to witness any tangible increase in home loan demand even as the interest rates are on a downward spiral.

There has been an expectation among the bankers that a host of monetary measures put in place by the Reserve Bank of India, in the recent past, and the cut in the prime lending rates by many banks would drive home loan demand, especially in the last one month.

“But the demand has been the same (with no increase) and the growth remains at only normal levels,” a spokesperson of ICICI Bank told Business Line over phone from Mumbai.

The sluggish demand is an issue between homebuyers and builders, and banks have nothing to do as long as prices remain on the higher side, he added.

When asked whether the bank would cut its home loan rates in the wake of State Bank of India’s move to offer loans at eight per cent, he said: “We constantly review the rates on the basis of cost of funds.” A revision of rates is likely to happen soon, he added.

SMALL REDUCTION
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said a reduction of 1 to 1.5 per centage points in interest rate is not what the customers are looking for.

“If there a one per centage point reduction in interest rate on a Rs 10-lakh home loan, the customer will get a benefit of Rs 1,000 in the interest per annum. This is not going to deter serious buyers when compared with 1-25 per cent reduction in valuation of properties,” he said.

The home loan growth during September and December this fiscal (quarter over quarter) had dipped compared with the corresponding period of previous fiscal in the industry in general, said a senior official of Indian Bank.

“We tried to improve business in this segment by focusing on small ticket loans (below Rs 20 lakh). But there are not many takers there also,” he said.

IT JOBS
Apart from unreasonable property prices, the prevailing uncertainty about jobs, particularly in the IT sector, has hit the number of home loan applicants. “It is a fact that IT professionals were very aggressive in taking house loans till recently,” he said.