Hopes of a sunny 2017 rise high as loan rates fall

Geetu Vaid

After a grim end to 2016 the realty sector in the country entered the New Year on a sunny note. This new-found hope and cheer is courtesy Prime Minister Narendra Modi’s  “post-demonetisation  damage control” address on the New Year Eve.

On December 31 the PM  announced the decision to provide interest subvention of 3 and 4 per cent for loans of up to Rs 12 lakh and Rs 9 lakh, respectively under Prime Minister Awas Yojana (PMAY). This will be in addition to the 6.5 per cent interest subvention on home loans up to Rs 6 lakh that is already available in PMAY. 

The move is set to give a boost to the residential segment, especially the affordablehousing as it is the segment having the maximum shortage — 95 per cent of urban housing shortage is in the affordable housing segment which comprises Lower Income Group (LIG) and Economically Weaker Section (EWS). 

Apart from the loan rate subsidy the PM announced another new scheme for neo middle class in rural areas which provides an interest subvention of 3 per cent on loans up to Rs 2 lakh taken in 2017, for construction of new houses, or extension of old houses. A 33 per cent increase in the number of houses being built for the poor under the Pradhan Mantri Awaas Yojana (PMAY) in rural areas was also announced. 

These steps are being termed as positive ones by the industry mavens. “These announcements are a positive step to accomplish the vision of ‘Housing for All by 2022’.  Government announcement of interest subvention on home loans up to Rs 12 lakh will be of great relief to LIG and neo middle class”, said  Parveen Jain, President, NAREDCO. According to experts with the subvention scheme in place the EMIs of loans up to Rs 12 lakh are expected to go down by almost 50 per cent resulting in substantial savings for the borrowers. However, the full extent of the benefits of the move will be clear once the government clarifies finer details regarding restrictions on income, size of the housing units and other eligibility criteria. 

“The government’s  two new schemes under PMAY will benefit people with lesser income, which is the largest base of the social pyramid of our country. Widening the scope of the existing Credit Linked Subsidy Scheme (CLSS) from Rs 6 lakh to Rs 9-12 lakh, will have an extensive impact on meeting the housing needs of the EWS and LIG groups. This move will increase the probability of individuals to avail housing loans thereby giving a boost to the affordable housing sector”, said Sandeep Singh Gaur, CEO, Sheltrex Sheltrex Developers P Ltd. 

Private developers’ lobby is all excited about the prospects in affordable segment now and will be focusing on this segment especially in 2017. As Kushagr Ansal, Director of Ansal Housing points out, “Since the affordable housing and housing for all missions have come up, developer lobby across the country has shifted its gears towards developing budget houses majorly. Almost 50,000 units are getting ready to be delivered by 2022 in Gurgaon itself; and across the country, this number is multiplying”. However, private developers are also looking for a larger role in this expansion  and  freedom to construct and market, under the broad policy of the government. Parveen Jain said that private sector developers, with some flexibility in planning, execution and marketing alongwith some incentives in taxation, would be of great help in meeting the housing shortage in urban areas.

Home loan rates slashed

While the PM’s announcements prepared the pitch for a revival of the realty sector, the banks added icing to the cake by announcing cut in home loan rates earlier this week. State Bank of India (SBI), reduced its marginal cost of funds based lending rates (MCLR). For SBI, the new rates are 8 per cent against 8.90 per cent for one year loans, 8.10 per cent and 8.15 per cent, respectively for two year and three year maturity. As a result home loan interest rates have come down substantially. Women borrowers of SBI can now avail home loan at 8.60 per cent, while the 

rate will be 8.65 per cent for others. MCLR has gone down for other banks also, e.g. for Punjab National Banks the one year MCLR is 8.45 per cent against 9.15 per cent earlier,  8.65 per cent against 9.30 per cent for Union Bank of India (UBI) and 9.15 per cent against 9.30 per cent for IDBI Bank.  

Apart from banks housing finance companies also brought down the interest rates. India’s leading housing finance company DHFL also reduced its  home loan lending rates by 50 BPS to 8.60 per cent from 9.10 per cent with effect from January 4, 2017. “The government's recent decision to provide interest rate relief to homebuyers and to those who wish to plan a home in 2017, as well as several past initiatives have created a growth-enabling and conducive environment for the housing finance sector”, said CEO DHFL, Harshil Mehta. The rate cut can serve as a catalyst to improve sales as several developers in the region have substantial unsold stock.Thus it is being termed as an opportune time for buyers who had been delaying their homebuying decsions for the past year in the hope of price correction.  “Unlike the earlier calibrated rate reductions, interest rates on home loans have been reduced overnight to their lowest in six years. Home loans from public banks such as SBI are now offered at an interest rate of 8.65 per cent for men and 8.60 per cent for women on loans up to Rs 75 lakh. ICICI Bank is also offering similar rates. Other public and private sector banks are either offering the same rates or are poised to follow suit, thanks to the highly competitive market conditions. The record rate reduction of 50 basis points is bound to have an immensely positive impact on buyers’ and market sentiments”, says Vineet Relia, Managing Director, SARE Homes. 

However, with Budget still a few weeks away and RBI’s next policy review due in February, the expectations of end users are high as more rate cuts and sops are being expected by them. “Hopes are high for more rate cuts in near future which will further ease the pressure off the economy and allow greater spending. This high purchasing power will result in people opting for real estate as an avenue for returns as well as residing, as even interest rates on deposits are decreasing, thus making them less lucrative. In a nutshell though realty sector is on a track of growth well-supplemented by such initiatives”, adds Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group.

Buyer’s market

Shrinking EMIs, There is little doubt that 2017 is going to be the year of affordable housing and a good time to buy if you are looking for a house in the Rs 25 to Rs 45 lakh segment. Data by realty portal magicbricks.com shows a 4 per cent price correction at a pan-India level, post demonetisation. This fall in prices, taken together with an EMI saving of 6 per cent, has led to a ready-made bouquet of anything between 8-12 per cent effective discounts for home buyers over the prevailing prices. Along with this the reducing gap between rental yield and EMIs also makes buying a better option than renting. “It’s  a buyers’ market now and those who had deferred purchases, due to high property prices, would be well-advised to initiate their research activity. The government and banks have taken the initiative here. There's no doubt that these stimuli would help build confidence, improve sentiment and we are in for good times in the real estate sector”, says Sudhir Pai of realty portal Magicbricks.com .