Stimulus package boosts housing loan offtake

Stimulus package boosts housing loan offtake
The Economic Times, August 6, 2009, Page 9

Housing Loan Disbursements Up 353% During 3 Months Ended May’09

Supriya Verma Mishra & Pallavi Mulay ET INTELLIGENCE GROUP

THE government’s first ever initiative to give impetus to the realty sector in the form of special home loan package has reaped benefits. The latest data released by the RBI shows that housing loans disbursed by banks as a whole grew by more than four times (353%) during three months ended May 2009. This compares with the average 53% decline in the previous three quarters.

“It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years,” said Bank of India executive director M Narendra. Unless housing, real estate and construction sectors are boosted, core sectors like steel and cement would not grow, he added.

The special housing loan scheme was announced in December 2008 when home loan rates were ruling at around 11%. Public sector banks were given a special stimulus package, under which home loans were being offered at low interest.

Housing loans up to Rs 5 lakh were given at 8.5% interest rate and borrowers in the Rs 5-20 lakh category were charged 9.25% for the first five years. However, this scheme was offered for only till June 30, 2009. Response to the scheme was muted initially. The demand picked up only in the later months of April and May. Housing loans increased by Rs 3,138 crore during three months ended May 22 compared to Rs 693 crore in first three months of the scheme.

Take the example of Bank of India. The year-on-year (YoY) growth in residential mortgage for the bank accelerated to 31% at the end of June 2009, compared to 15% growth at the end of March 2009. Other banks also experienced the same.

“The response to the scheme showed the impending demand in the sector. April, May and June saw the maximum loan applications,” said IC Shetty, divisional manager of Canara Bank. This step had the desired effect of boosting housing demand by helping home buyers who were left out during the previous rally when prices were skyrocketing.

Not only did it bring a lot of home buyers back to the market, it also helped developers generate revenues. From a time when there were hardly any units being sold during August’08-March’09, demand picked up to the extent where almost 3-4 flats were being sold every week by April.

Fundraising by realty PEs slumps 72%

Money raised by realty-focused private equity funds declined to an over fouryear-low level of $10.3 billion in April-June 2009 as institutional investors remained hesitant in committing capital, reports PTI from New Delhi. According to a report by global research firm Preqin, PE real estate funds are still struggling to raise capital. In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16% from $37 billion in the year-ago period. The fall is particularly noticeable for funds targeting Asia. “This represents the lowest fundraising quarter for PE real estate funds since Q4 of 2004, when the funds raised an aggregate $10 billion,” Preqin said. The report said investors have turned cautious and are now looking at more established markets. “During this time of economic instability, investors are especially cautious when making new commitments, and are therefore in many cases looking towards more established markets, rather than emerging markets, which are perceived as being higher risk,” the Preqin report said.