Home loan interest rates to be stable

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New Delhi, Jan 6: Contrary to popular belief, home loans are not likely to be more expensive in the near term. Most housing finance companies and banks are understood to have abandoned plans to hike interest rates for home loans.

Increased competition due to entry of new players in the sector and the boom in real estate that created an additional demand for construction activity are said to be the reasons for the HFCs’ decision.

At present, the average rate of interest on home loans is around 8%. “Interest rates on home loans are now expected to remain stable in the coming months,” HDFC Housing Finance’s general manager Madhumita Ganguly told FE. She added that HDFC, which increased the interest rates by a quarter per cent a few months back, has no plans to raise interest rates further.

PNB Housing managing director KG Sathyasigan echoes the same sentiment. PNB Housing’s interest rates are at 8% and 8.5% on the floating and fixed schemes respectively.

Though for the most part of 2004, interest rates on housing loans showed a downward trend, HFCs and banks in the last few months increased their interest rates by 0.25-0.5%.

With the real estate sector all set to see a capital infusion of about $7 billion in the next 12 months, housing finance companies and banks are also gearing up to tap the booming market, sources said.

This apart, entry of new players like GE Money has intensified competition. The home loan segment, in the current fiscal, is expected to register robust growth of about 30% over 2003-04. Total loan disbursement in the previous fiscal stood at about Rs 18,000 crore.

The growth rate is expected to further increase in 2005-06 with fresh capital infusion of $5 billion by domestic developers and another $2 billion by foreign players. Estimates have shown that the country is short of over 42 million dwelling units.

Bank of Baroda chairman and managing director PS Shenoy too said that the bank had no plans to raise the interest rates in the near future.