The government on Thursday made loans cheaper even for slightly bigger homes bought by middle-income groups in a move that should boost demand and help kick-start the real estate sector. The pace of home purchases has tapered off sharply for several reasons; while buyers have been waiting for prices to come off, the roll-out of rules under Real Estate Regulatory Authority (RERA) in July has held back new launches. Demonetisation too is believed to have hurt home sales; the inventory of unsold apartments across India is estimated at close to Rs 6 lakh at the end of September. Keki Mistry, vice-chairman, Housing Development Finance Corporation, noted the lower interest for larger homes should spur purchases. However, the caveat that those already owning a property would not be eligible to a lower interest, Mistry felt, should be done away with as there were several buyers wanting a second home. The Cabinet on Thursday approved a proposal that will allow those with an annual income of up to Rs 12 lakh to buy or build a house of up to 1,200 sq ft; earlier the area was capped at 900 sq ft. Those with an annual income of up to Rs 18 lakh are now eligible for loans at a softer rate to buy or build a home covering 1,500 sq ft; this was 1,100 sq ft earlier. Purchases in the secondary market are also covered by the scheme.
PK Gupta, managing director, State Bank of India, said the new rules would encourage more purchases at a time when buying had slowed somewhat. Gagan Banga, vice-chairman and MD, Indiabulls Housing Finance, said given how buyers preferred slightly larger homes in the Tier-II and Tier-III cities, several potential buyers had not been able to take advantage of the soft loans. “We expect many of them will not use the opportunity to buy homes now,” Banga said, adding sales could see a spurt in cities such as Pune, Chandigarh, Ludhiana and some pockets in south India. Crisil Research wrote recently that demand for residential property was unlikely to revive in the next 12-18 months.
“Though capital values have been under pressure over the past few quarters, a significant chunk of supply in many micro markets remain unaffordable,” analysts at the ratings agency observed. The total outstandings of mortgages with banks at the end of September was 12.8% higher than those in September 16. This was slower than the increase in outstandings between September 2015 and September 2016, when they had grown 18%. Since demonetisation the pace moderated to a monthly average of 15%. That’s despite an effective asset price correction of around 5-10% in H12017. However, housing finance companies have, over the past year, disbursed at a fairly fast pace.
Earlier this year, the government had allowed buyers with an annual incomes of between Rs 6 lakh and Rs 18 lakh to borrow at concessional interest rates. Approximately 3.5 lakh homes of the registered 6.7 lakh apartments in Mumbai Metropolitan Region have not found buyers so far, according to data on the MahaRERA website. Experts say developers are looking for more affordable locations to make homes affordable. “Developers are building smaller apartments because compact two-bedroom homes are selling faster at the moment. The interest subsidy for slightly bigger homes will help clear off inventory from older projects,” said Rohit Gera, MD, Gera Developments.