Even as home loan rates rise, the number of financing options in the burgeoning market will ensure healthy competition, says, DEEPIKA MITAL Experts are unanimous that home loan rates are due to go up, the Reserve Bank of India (RBI) has increased interest rates seven times in 2010 aggregating 300 basis points (bps). It is interesting to note that there has been a relatively muted 150 bps increase in home loan interest rates, but the latest increase will put upward pressure on home loan interest rates, given that the bank and housing finance companies have very little wiggle room left. Nonetheless, the demand for home loans will continue to be strong, if property prices stay stable. Besides, with the increasing number of housing finance companies and banks that are in the fray, the buyer has a wider choice and can opt for the best deal. Kruti Jain, Director, Kumar Urban Development, is positive in her assertion that demand graph swings are just momentary. “Demand always outstrips supply in real estate. Many buyers would like to hang on till they get the right price offer for the right property that they look for. I am fully confident that the government will definitely take steps to contain inflation since it is not good for the economic health of the country.” On account of various factors such as increased urbanisation, favourable demographics, rising levels of disposable income, government tax incentives and improved levels of housing construction activity, the housing finance industry in India has definitely seen an uptake. Several banks and housing finance companies (HFCs) include the cost of registration, stamp duty, society charges and other associated costs while sanctioning loans to differentiate and make home loan products more attractive. Also, financial institutions are resorting to offering free addons such as life insurance, credit cards and consumer loans at reduced rates for furnishing homes in addition to tailor-made loan schemes to renovate, repair, extend, convert or otherwise improve one’s home. Consumers are also benefiting from the numerous property fairs being organised by lending institutions and also through counselling and legal advisory services being extended on matters pertaining to property titles, evaluation, pricing. According to Rohit Gera, Joint Managing Director, Gera Developments, this is welcome news from the point of view of home buyers. “Any form of competition is good for the end consumer. This would, in fact, drive more efficiency.” Additionally, he says that the country’s economy is doing well, so the RBI’s effort to increase home loans by 25 basis points should not have much effect on the home loan market as such. “Salaries are expected to increase by 15-20 per cent this year, so a quarter of raise in basis points should not have much effect on the overall interest numbers,” he says. Sachin Sandhir, MD & Country Head, RICS India says, “This has been more visible in the post-reform period, where there has been appreciable growth in housing finance through several intermediaries such as commercial banks (CBs), housing finance companies (HCFs), and apex co-operative housing federations (ACHFs). From the buyer's perspective, the increased number of players has boosted competition subsequently giving rise to a buyer's market, where the customer now has choice and bargaining power and is in a position to demand quality service in the wake of the housing finance industry increasingly being commoditised.” Amit Goenka, National Director - Capital Transactions, Knight Frank says, “The mortgage industry in India is still very nascent with only about 4% of India's GDP being home mortgages as opposed to over 70% in the US markets. With interest rates moving up and low delinquency in this lending space, many NBFCs and Financial Institutions have been acquiring Housing Finance Company (HFC) licenses. There are two repercussions of this; firstly, with increasing competition for providing home loans amongst players, consumers would be able to secure the most competitive or the most favourable rate and terms for their home loans. Each mortgage provider, especially the non-banking service company is wooing consumers with aggressive marketing campaigns. Even banking HFCs are providing deposit linked mortgage schemes to lower the overall cost of borrowing. That is empowering the consumers to choose from a multitude of options. Also, small business owners and lower salaried homebuyers are now able to find a mortgage provider that was earlier difficult.” The increasing competition is explained by the fact that the current housing finance market size is about Rs 1.5 trillion and is expected to double by the end of the financial year 2015. Anil Kothuri, Head-Retail Finance, Edelweiss Group, a financial services conglomerate that has recently commenced a housing finance business under Edelweiss Housing Finance Limited (EHFL) says, “There is an upward pressure on home loan interest rates. They are already hovering at 9 ¼ to 9 ¾%, so getting into double digits is not so far away. In fact, in 2010 the RBI has raised rates by seven times amounting to a cumulative 3 ¼% and home loans rates have gone up by just around 1¼% . So the home loan rates have some catching up to do - the question is, how high.” Kruti Jain says, “Inflation and resultant high interest rates are always bothersome for homebuyers since their EMIs come under pressure. Ever increasing cost of living, coupled with high EMIs are bound to cause concern. While there is pressure on developers to keep real estate prices under check, the government should also do its bit by checking the rates of interest. The government could also consider offering some more tax concessions like increasing the tax allowance on home loan installments.” On the buyers’ side, Kothuri says, “Buying a house is a ‘stage of life'’thing. Those who need an apartment will go in for one regardless of the environment, whether it is the prevailing interest rates or the current prices. Looked at over a five-year period, rates of homes have always gone up. Loans are easy to get and salaried buyers in their mid-20s are borrowing. Edelweiss Home Finance loans are targeted at the salaried customer.” Goenka analyses that Indian consumers tend to be largely swayed towards banking institutions as opposed to NBFC, FIs or other unorganised firms due to their prolonged interactions with banks. However, the deal clincher lies in two facts: a) The interest rate, the lowest offers for the term of the mortgage and b) The trust on the brand by the consumer. Sometimes, however, the second may be replaced by the time to disbursement. Hence, those institutions that can offer the most competitive rates in the shortest time to disbursement clinch the deal. If a renowned banking institution can offer both of these then business automatically moves there. Hence the likes of ICICI, HDFC, SBI and LIC HF have the largest market share in this space. Even so, many developers are increasingly tying up with non-banking HFC for pre-approval of projects for consumer mortgages, as Kruti Jain says, “Preferences depend on relationships which again arise out of service levels. As developers, we maintain a healthy roster of institutions that can offer competitive rate of interest. Even a quarter or a half per cent variation makes a huge difference to the buyer who would prefer an established player and of course the one who has lesser hassles.” For the buyer such pre-approvals mean that there has been a lot of due diligence done by these institutions, so their money is relatively safe. As Goenka says, “If banking and non-banking HFCs have pre-approved the project then the consumer choices become much simpler and faster.” QUICK BYTES THERE HAS BEEN APPRECIABLE GROWTH IN HOUSING FINANCE THROUGH SEVERAL INTERMEDIARIES SUCH AS COMMERCIAL BANKS (CBS), HOUSING FINANCE COMPANIES (HCFS), AND APEX COOPERATIVE HOUSING FEDERATIONS (ACHFS)
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