Across-the-board price corrections are expected on lower interest rates,and developers wish to put a dent on piled up inventory
If you had deferred plans to buy a house in 2008 then 2009 could be the year when your wish may be fulfilled. Several factors are expected to work simultaneously in your favour to help own that new home.
Consider this: The home loan rates, which rose to touch double digits, have been tamed. The rates are back to the good, old single-digit rates. Public sector banks recently announced concessional interest rates for loans under Rs 20 lakh. For a loan under Rs 5 lakh the home loan rate is 8.5 per cent and from Rs 5 lakh to Rs 20 lakh, the rates will be 9.25 per cent.
“Interest rates on home loans will definitely fall further,” says PK Jain, executive vice-president, PNB Housing Finance. “Banks may even provide the special interest rate for loans up to Rs 30,00,000 if the cost of funds comes down.” A low home loan rate implies a substantial reduction in the EMI (equated monthly installment).
Jain adds that right now, there is a wide gap in floating rates and special rates offered by banks, but as the interest rates dip further, floating rates might become more affordable. “The borrower has to take a chance here,” he says. “Even the housing finance companies would reduce their lending rates to keep them at competitive levels.”
KC Chakrabarty, chairman and managing director, Punjab National Bank, agrees. “The interest rate has come down and is expected to dip further in the coming months. Even developers are coming to terms with reality and have slashed their prices. All these measures will help the real estate sector and ultimately, the consumer.”
In addition, despite a 15-20 per cent decrease, the prices of residential property are still facing a downward pressure across the country. The developers and investors (read speculators) may not be willing to pass on a price cut yet but they would eventually be forced to rationalise prices.
Almost every developer is facing a crisis of funds as every possible source of funding has either dried up or is drying up fast. PE (private equity) funds are being wary of lending and so are the banks. These lenders are offering funds only on condition that the developer shows its inventory being offloaded with sales taking place and cash flow increasing in their account books.
“Banks have stopped taking any additional exposure to real estate, without supporting cash flows and tangible collaterals from the developers,” TS Narayanasami, chairman and managing director Bank of India, who is also the chairman of Indian Banks’ Association had recently told Financial Chronicle.
So if the banks demand to see cash flows into the developer’s account books, they would have no other option, but to slash prices further in order to stimulate demand and sell their piled up inventory.
Even in the secondary market, the cost of holding an apartment is increasing by the day. A majority of the investors had borrowed money to buy residential units in the hope of making a fast buck through quick sales at a higher price. This is not happening and transactions have virtually stopped. “These investors will be forced to bow and go for price cuts. The sooner they do the better it will be because longer delays might force their hand to settle for a deeper price cut,” a senior realty analyst, who did not wish to be identified, told Financial Chronicle.
In addition, the developers too have realised that further growth will come from only those projects, that cater to the masses. Affordable housing is the talk of the town and who would know it better than the developers. They have learnt it the hard way that if a project drills a huge hole in end-user’s pocket, they will prefer to stay in rented accommodations. A similar option does not exist for the developer, though.
Courtesy: Finance Chronicle dated 07/01/2009
