SECTOR HAILS RATE CUT AND AFFORDABLE HOUSING INCENTIVES

As the final day of the previous calendar year arrived, entire nation was waiting for the late evening when our Honourable Prime Minister Narendra Modi was to address the nation. Since his address on 8th of November last year, when demonetisation of large currency was announced, everyone was under the impression of what new policy might get implemented on the New Year Eve of 2016. During the address, Prime Minister this time announced some New Year gifts for the public that received a cherry on the top when several leading banks in the country slashed its lending rates by almost 0.9 percent or 90 basis points.

Both the news now carry heavy weightage for the realty sector of our country which has high hopes from 2017. “Moving into 2017, it will be the year of affordable housing segment and now especially with the government announcing incentives for this segment’s prospective buyers and banks reducing lending rates, we will now witness more launches of affordable housing projects than any other segment in the realty sector of India”, believes Pradeep Aggarwal, Chairman, Signature Global.

During the address, two new housing schemes were announced citing the fact that there are still millions of people who don't own a property either due to affordability factor or high interest rates which subsequently increases the EMIs. For the urban poor, in 2017, a rebate of 4 percent and 3 percent would be provided on home loans upto Rs. 9 lakhs and Rs. 12 lakhs respectively. Also, for the new housing or extension of housing taken up on 2017, a rebate of 3 percent would be provided on home loans extending upto Rs. 2 lakhs. PM Modi further added that the number of houses being built  for the poor under the Pradhan Mantri Awaas Yojana (PMAY) in rural areas was being increased by 33 percent. “With announcements such as these, we are inching closer towards fulfilling the dream of building 2 crore affordable housing units for the urban poor by 2022. When lending rates are reduced, it allows the market to create fresh demand, and in this case, developers across the country will focus on developing affordable housing units which will be supported by reduced lending rates, and gladly accepted by the buyers”, explains Vikas Bhasin, MD, Saya Group.

Adding further, Kushagr Ansal, Director of Ansal Housing points out that, “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 at the rate of knots. This in the long run will allow the country to meet the demand against the shortage of budget homes and allow everyone to get a roof over their heads.”

Speaking about the announcement of banks reducing the lending rates, Pradeep Aggarwal adds, “Banks reducing the home loan rates by upto 90 basis points is in general a great news for the sector ahead of Union Budget 2017-18. Most of the people begin property purchase planning around the budget period so as to get clarity about their financial year ahead. This in turn will allow demand for housing to increase this year that will help the realty sector to gain momentum. Affordable housing segment will reap out the highest benefits as a result of extra cushion provided by the government’s recent decision.”

Several leading banks in India have cut down tremendously on the lending rates. For instance, State Bank of India (SBI), reduced its marginal cost of funds based lending rates (MCLR). For SBI, the new rates are 8 percent against 8.90 percent for one year loans, 8.10 percent and 8.15 percent respectively for two year and three year maturity. For other few banks, one year MCLR stand at 8.45 percent against 9.15 percent for Punjab National Bank (PNB), 8.65 percent against 9.30 percent for Union Bank of India (UBI) and 9.15 percent against 9.30 percent for IDBI Bank. Consequently, home loan borrowing has also come down drastically, signalling a boost to housing demand for near future. For example, women borrowers of SBI an avail home loan at 8.60 percent and 8.65 percent for others, thereby saving a decent amount on the EMIs.

“With the government’s announcement of rebate on lending rates along with the banks providing rate cut cushion to the public, affordable housing segment is the biggest gainer of all. Citing the example of the lowest rate in the market at present, 8.60 percent; affordable housing prospective buyers will be basically borrowing now at 4.60 percent or 5.60 percent for loans upto Rs. 9 lakhs and Rs. 12 lakhs respectively. EMIs for this category has fallen by almost 40 percent, which will enhance the demand for housing amongst the buyers”, elucidates Dhiraj Jain, Director, Mahagun Group.

“Its just the beginning of a rate cut cycle in India. Banks at present are carrying high volume of liquidity due to the 50 days of demonetisation. It was well forecasted that rate cuts will begin soon. RBI’s next policy review is due in February as well as the Union Budget 2017-18. 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 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”, concludes Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group.