Banks celebrate the return of home buyers

Written by Kakoly Chatterjee | Updated: Aug 12 2010, 06:08am hrs
With the churn in the construction sector over and buyers once again interested in purchasing new homes, the offtake of home loans has gone up substantially. Both lenders and construction companies are back in business, thanks to the renewed interest shown by home buyers.

As more enquiries are getting converted into sales, the pace of ongoing projects are picking up and new projects are also being launched.

For State Bank of India, one of the major lenders of home loans, the past three months have really been good, a senior officer who deals with home loans in the bank said.

While the latest hike in repo and reverse repo rates by the Reserve Bankmaymake loans a little costlier for newborrowers, existing borrowers will not be impacted by the changes in base rate, the SBI officer asserted. SBI is unlikely to pass on the rate hikes by RBI to home loan borrowers immediately.

SBI chairman OP Bhatt had, in fact, ruled out any impact on SBIs margins froma likely jump in the deposit rates, saying an expected pickup in loan growth on the back of economic recovery would help the bank maintain its margins.

Though investments have increased in the home asset category, developers fear that higher interest rates at this juncture could drive down demand. The realty sector is reeling under a paucity of funds, and prices have been showing an upward trend. Webelieve that any further increase in the interest ratesmaylead to a downtrend in the overall demand, Rohtas Goel, chairman and managing director,Omaxe, said.

Analysts point out that the base rate system is not really that bad because it introduces transparency in the system and customers know what they are getting compared to others and can bargain for a better deal.

While realty companies have realised that only affordable houses are selling and are planning projects accordingly, major lenders like HDFC and SBI have realised that a majority of buyers are first-time buyers. As a result, they have introduced teaser rates to attract more customers. Both lenders and realty companies are playing the volume game.

Teaser rates help to attract more customers and give the lender an edge over competition, a Mumbai based analyst pointed out.

Currently, 96% of SBIs home loan takers are first-time borrowers. SBI and HDFCare offering home loans at 8%and 8.5%, respectively, inthe first year.The SBI easy home loan scheme is expected to expire by the end of September. With the rising cost of funds, banksmay no longer be able to continue with the teaser rates.

As a strategy, banks are encouraging existing customers with a good track record to go for a second home.

With a notable rise in the disposable income of a section of the working populationthanks to a jump in the pay of central and state employees, public sector enterprises, banks and private sector firmsbanks want to take advantage of the emerging trendwhereby people own their first home by the age of 25 and second by 35. The second home is, basically, for investment purposes.