Low interest rates: Banks and real estate woo customers

Low interest rates: Banks and real estate woo customers

Banks and the real estate industry are bullish on this festive season, as they have started seeing euphoria among home buyers. While banks are wooing customers with the lowest home loan interest rates, real estate companies are coming up with various offers to overcome stagnant sales in the past few months.

Majority of both public and private sector banks charge home loan interest rate starting 8.35%. Home loans, which are taken after April 1, 2016, are linked to the bank’s MCLR (Marginal Cost of Lending Rate). If it’s women borrowers, some banks offer much lower interest-rates.

Bank officials say although, home loan interest rates have witnessed a declining trend in the last few years, post demonetisation the rates have further dropped on account of excess liquidity in the banking system.

“In recent times, with major banks reducing interest rates for savings accounts by 50 basis points, and stable inflation rates, we could see a marginal decline in interest rates in the next few months,” says Rajan Pental, Group Head, Retail Lending, YES Bank.

A Canara Bank official says banks’ interest rates depend on RBI guidelines. “Every month in the first week, banks reset their charges based on RBI guidelines. If RBI maintains status quo in October, there will not be any changes, but if it cuts, then again home loan interest rates might come down,” adds the official.

At present, public sector lender Canara Bank offers interest rates to women borrowers (up to Rs 30 lakh) at 8.35%, and 8.40% to other borrowers. Largest public sector lender SBI too offers similar interest rates.

Private sector lender YES Bank offers interest rates starting at 8.50%. Pental says, “These rates vary as per the customer risk category and the product variants under which the customer is being appraised.”

Although the bank offers home loan to all customer segments, the focus is on affordable housing segment. “In FY17 (May’16), we launched KHUSHI Home loans in order to meet the housing loan requirements of lower income group segment having formal, semi-formal and informal income documents through various surrogate programmes within a strong risk management framework. Under this product, we extend loans to individuals with family income starting from Rs 9,000 per month. We have been witnessing significant growth in business month-on-month since the launch,” Pental says.

He adds that the huge latent demand, thrust from the government on affordable housing and its customised product offerings are helping the bank grow exponentially in this space.

On the festival sales, he says, “The developers come up with various innovative discounts on their projects while most of the builders prefer to launch new projects during this period. Home buyers also wait for the festive season as the real estate market is flooded with offers making customer the king.”

Housing for all

There is a lot of action happening in affordable housing segment. “We are seeing a great impetus by the Central Government on “Housing for All” through a lot of new initiatives under Pradhan Mantri Awas Yojana (PMAY). As a natural fallout of this supply side of the housing sector is gearing up for this demand. We have seen a jump of almost 50% in terms of values on year on year basis for first quarter,” says Govind Ravindran, Head of Consumer Lending and Retail Banking and Senior VP at Lakshmi Vilas Bank. The bank’s home loan rates are at 9.50% per annum onwards.

“We have tied up under the Credit Linked Subsidy scheme where a home loan borrower can benefit up to Rs 2.67 lakh while buying a home. Also, we have been improving our turnaround times to woo more home loan buyers. We are also in the process of entering the primary market to garner market share,” adds Ravindran.

This is the right time to buy a house. Lower interest rates allow customers to take larger loans, or pay lower EMIs, says Adhil Shetty, CEO and Co-Founder Bankbazaar.com. “Central Bank and Bank of India provide home loans at 8.3%. HDFC, ICICI, Axis, BOB, IDBI, PNB and SBI have floating rate home loans beginning at 8.35% as of September 22,” he adds.

Also, with the implementation of RERA across states, higher accountability and transparency are expected in the housing space, thereby reducing the risk perception of lenders resulting in better credit flow at lower rates.

Viswa Prathap Desu, Senior VP- Sales and Marketing, Brigade Group says, “RERA will primarily ensure consumers are more protected from delays and non-performance of builders. It will also mean a longer defect liability period of five years. All this means a higher cost in the long run. While, GST will make the indirect taxes uniform, it has a higher impact on the overall cost. So, both GST and RERA together will increase the cost of an apartment by at least 5-7%.”

Brigade Group woos customers by providing furnishing offers and special prices, and these offers are considered to be an all-time attractive level.

“While the demand for real estate in India remains huge, actual consumption has remained sluggish. Given the liquidity situation prevailing in the market post demonetisation, there is scope for banks to cut their lending rate further. The amalgamation of lower interest rates coupled with various progressive measures taken by the government will hopefully bring back buyers ahead of the festive season,” says Surendra Hiranandani, Chairman and MD, House of Hiranandani.

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