The real estate sector companies gave a thumb down to the soft loan package for home loans of up to Rs 20 lakh announced by public sector banks on Monday. But the stock markets signalled the package will benefit the real estate companies. At the Bombay Stock Exchange, the realty index was the best performing sectoral index. It registered a positive swing of 5.53% to 2,245.87 from 2,128.18 on Friday.
Effective Tuesday, interest rates on home loans up to Rs 5 lakh will not exceed 8.5% annually for the first five years. Similarly, in the case of housing loans between Rs 5 lakh and Rs 20 lakh, the rate will be 9.25%. RBI data shows home loans of up to Rs 20 lakh comprise 83% of the total home loan portfolio of the banking sector. So far banks had been charging varying interest rates between 10% and 10.50% on housing loans up to Rs 20 lakh. The special package for the housing sector as well as for micro- and small and medium enterprises will be applicable till 30 June, 2009.
Interest rates for borrowings by micro-industries will be also reduced by 100 basis points for all existing and new loans with immediate effect. Small industries will also get a relief of up to 50 basis points.
Also, the margins required for home loans up to Rs 5 lakh and from Rs 5 lakh to Rs 20 lakh will be 10% and 15%, respectively. These home loans will also come with free life insurance cover and have no processing charges or pre-payment charges levied on them.
OP Bhatt, chairman, State Bank of India, said he expected about Rs 20,000 crore would be disbursed as additional home loans under the new package. He acknowledged that there could be an impact of 2-3 basis points on bank profitability because of the stimulus package, but added it was quite low as the public sector banks were growing fast. The banking sector index in the BSE trailed the overall market index rising by 1.51%.
Explaining the muffled expectations of realtors to the package, Amitabh Chakrab-orty, president of equities at Religare Securities, said a boom was not really possible at a time when the job market was tight. ?Buying house is a proposition for long-term asset creation. It cannot be based on interest rate cuts. With uncertainty in the economy and in the job market, serviceability of the loan becomes a problem.?
DLF group executive director Rajeev Talwar said the rates of interests were still very high. ?This package will give a miss to super-metros, metros and tier-I cities, which are the major segments for demand drivers,? he said. The sentiment was echoed by Parasvnath Developers chairman Pradeep Jain, ?The disappointing part is the rate of interest. We were expecting a much higher cut in the rates?, he said.
Real estate companies had recently shifted to low-cost, affordable housing but in the suburbs, this translated to a price of Rs 40-60 lakh.
Navin M Raheja, MD of the eponymous Raheja Developers, said, ?For people to shift from rented accommodation to self-accommodation, and also for them to service the loans smoothly, the mortgage rates need to come down further. Until the interest rates come down to 7-8%, loans will continue to be expensive. The rate cut on upper limit of the loans need to go up to Rs 30 lakh, at least for metros?.
But analysts like Shobhit Agarwal, joint MD, capital markets, Jones Lang Lasalle Meghraj, said the interest cut will help borrowers who buy homes in the outskirts of the city and suburban areas.