Fresh rate cuts to spur growth in realty sector

Fresh rate cuts to spur growth in realty sector
The Financial Express – Corporates & Markets, July 6, 2009, Page 11

Mona Mehta, Mumbai

Following new rate cuts in a highly competitive home loan market, real estate developers feel time has finally arrived to offload their projects, transform residential property demand into actual purchase decision by home seekers, generate capital for the new projects and thereby keep the market fluid.

“Declining interest rates and easy availability of credit is expected to spur the sales of flats. Residential property market will witness buoyant demand as home seekers applying for loan for amount up to Rs 30 lakh will be benefited as SBI Easy Loan will carry the special rate of 8%,”said Lalit Kumar Jain, chairman, Kumar Builders.

Public sector banks, after the rate cuts, are charging a floating interest rate of about 9.25% on a home loan of Rs 30-lakh with 20 year tenure, while select private sector banks are quoting between 9.75 and 10.50%.

Home loan rates are one of the key drivers of real estate investment among other factors like macro-economic outlook, real estate prices, affordability index etc.”During last few years, home loan rates have been steadily creeping upwards and the recent round of announcements reducing interest rates will boost buyer interest and reducing interest outgoings for the consumer” says Anita Arjundas, managing director and chief executive officer, Mahindra Lifespaces.

There is a huge latent demand for homes, and rationalisation of home loan rates will definitely help transform this demand into actual purchase decisions, feels experts. According to Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj , “Fresh demand will be generated with the arrival of affordable loan regimes. In that respect, it is good news all around - home seekers will get what they have been waiting for, and developers will be able to offload their projects, generate capital for new ones and thereby keep the market fluid.”

However, it is not inappropriate to point out that an increase in demand will also cause developers to raise their rates again. Puri explained, “Even without such an incentive as increased affordability, we have already observed such a trend across various projects and locations. Unfortunately, we lack an effective sector regulator to keep an eye on opportunistic price movements. We must bank our faith on the government’s ability to foresee the possibility of such a negative trend, and on its speed in introducing into the system appropriate safeguards to prevent it.”