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THE WAY OUT

The Times of India (Times Property) - 1 May, 2011

The loan interest rate rises shouldn’t deter property buyers; realty experts suggest a few pragmatic solutions to the quandary, says RAJIV DOGRA As a measure to clamp down inflation, major banks and housing finance companies (HFCs) recently raised mortgage rates, the ninth hike in over a year. This has left a number of home loan customers with floating rates reworking on EMIs (equated monthly installments). With the State Bank of India (SBI) recently raising its lending rates, taking its effective home loan rate to 10.25 per cent, other banks such as ICICI Bank and HDFC Bank, too, jumped the bandwagon. After the latest round of rate hikes, SBI's home loan customers would pay 100 basis points (bps) above its base rate of 9.25 per cent; thus the effective rate becomes 10.25 per cent. In the last two years, interest on home loans has gone up by at least 200 basis points (100 basis points equals 1 per cent), from about 8 per cent to above 10 per cent. A quick back-of-the envelope calculation shows that home loan rates have increased by about 25 per cent. Realty experts observe that the rise in interest rate would have a compounding effect on a home buyer on a higher interest regime. “The impact of the home loan rate rise works up to Rs 50-75 per lakh of the EMI,” says Amit Goenka, National Director, Capital Transactions, Knight Frank India. “This may not have any significant impact for a property buyer in metro cities, where the ratio of ticket prices to unit sale is quite high. However, it may influence buyers of properties in tier II and III cities.” Developers, meanwhile, observe that the present hike in interest rates is all about “micro economics playing the part” and it's left up to a buyer to take a call. Kumar Gera, Chairman and Managing Director, Gera Developments, says: “In the construction industry, all inputs are going up, including labour cost, government taxes and other miscellaneous infrastructure charges. So, rise in interest rates is a part of this micro economics. This should, however, not defer a home buyer's decision. Ideally, they can settle for a slightly smaller space considering that affordability is not affected. Moreover, they can opt to go out further away where rates are comparatively lesser than the preferred destination .” However, for a home buyer opting for a loan less than Rs 50 lakh, a slight rise in interest rate shouldn't be a matter to worry about, maintain developers. According to Atul Goel, Managing Director, Goel Ganga Group, a per cent of rise in home loan rates should not act as a deterrent to buying a home. “The prices in the construction industry are heading northward, so chances are that if an individual has opted to buy a particular property, it may not be available at the same rate at a later date. Either way, investment in realty fetches good returns in the long run through rent.” Ideally, what type of a loan option suits a home buyer in the present context? “In the rising interest rate scenario it is better for a person to avail a fixed rate home, or a loan with interest lockin period for the first three years. As in the long term the interest rates are likely to come down,” says Jayant Gehi, Assistant Vice-President, Business Development and Sales, Supreme Universal. In addition to this, a home buyer should always speak to at least three to four different housing finance institutions and understand their products and compare them to decide what best suits their needs, says Gehi. “They should especially look at lock-in clauses, exit penalties, process fees apart from the interest rate in the home loan. For example, if they are expecting some funds in the near future and would like to reduce their loan amount they should ensure that their loan does not have a prepayment penalty so that they can pay back such amount and reduce the interest burden,” he adds. Generally, the tenure of mortgage is for a period of 15-20 years. However, in some cases, such hikes could well have taken the tenure of home loans to beyond 20 years. This in turn raises the possibility of banks and HFCs now asking some customers to part pay the principal amount of home loans. “A home buyer can in the long-run opt for increasing the term of EMIs after taking into account their disposable income,” says Gera. Finally, while the investors’ market would remain unaffected, the market of home buyers will be marginally affected by the present rise in home loan rate. “It is important to prepare your budget imagining the darkest picture thus anticipating a one per cent rise in the interest rate in future. Some amount of pragmatism is required to take a final safe decision,” says Gera. QUICK BYTES IT IS IMPORTANT TO PREPARE YOUR BUDGET ANTICIPATING A ONE PER CENT RISE IN THE INTEREST RATE IN FUTURE SPEAK TO AT LEAST THREE TO FOUR DIFFERENT HOUSING FINANCE INSTITUTIONS AND UNDERSTAND THEIR PRODUCTS AND COMPARE THEM TO TAKE A RIGHT DECISION

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It was indeed a pleasure being a part of the Christmas celebrations at Astoria. Kudos to the Gera team for bringing in such a wonderful event with great carol singing participation from our own kids. It brought in the spirit of Christmas and the games, Santa, the gifts only added to it. Thanks for organising such a wonderful event which helped in community building...looking forward to many more such celebrations!

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The Christmas event organised at Astoria was a big success and a big step in bridging the gap between us and Gera. It was a memorable event as we are still in the beginning of our journey of life in our little home at Astoria. The kids have been the happiest of all and what more can we ask for when we see smiles on the faces of our little ones. Kudos to you and your team for making this event a huge success! Looking forward to many more in the years to come.

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The Christmas party organised by Gera at Astoria this year was a great success with good participation from kids and parents. Our children Sia and Saish enjoyed the party to the fullest. Sia, in particular, had a gala time and reiterated her stand that Anita aunty's parties are THE BEST.... We as your customers take much pride in informing our friends that such goodwill gestures are one of the many differentiators Gera brings to us, which no other builder in Goa can boast of. Many thanks to you and your team for doing an excellent job in putting up this event. We look forward to the next one! A big thanks to the Gera Management for its efforts in community building.

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