Amid piling inventory levels of unsold houses, RBI Governor Raghuram Rajan on Thursday said the larger need is to push demand by a price cut by the real estate developers.
With the piling inventory levels of realty players the controversial ‘teaser loans’ back into focus as the largest lender State Bank of India asking RBI to allow lenders to sell loans below the base rates.
“I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don’t want to create a situation where prices stay high at the level which means demand can’t pick up,” Rajan said at the SBI Conclave.
It would be a “great help” if realty developers sitting on unsold stock bring down prices, he said, adding that once the prices stabilise, more people will be keen to buy houses.
Echoing the need for developers to bring down prices, SBI Chairwoman Arundhati Bhattacharya reminded Rajan about the introduction of the teaser loan product, where it used to lend below the base rate or the minimum rate of lending, saying the product was able to revive demand in the days after the 2008 crisis.
“I am told that real estate stock is at two-year high and I was thinking if it is possible for a little while… could something of this (teaser loan) kind could be allowed given the fact that this is one of the portfolio where NPAs are the lowest,” Bhattacharya told Reserve Bank Governor Raghuram Rajan at a conference.
“In 2008 when the economy started faltering, one of the things that made demand go up was the 8 per cent housing loan that SBI did. Of course at that time it was tagged as a teaser, we in SBI refute that because the due diligence that went in for those loans are the same for other loans as well, even your eligibility was same as regular loans.
“Only thing is that for the first two years the customer is allowed to pay at a lower rate. What did happen was that demand really kicked in,” she said.
There was an intense fight between the RBI and the bank over this product and the then SBI Chairman O P Bhatt had gone to the extent of saying that the regulator did not understand the product.
Rajan said he believes that if real estate developers, who are sitting on unsold stocks, bring down the prices, that will be a very great help to the sector.
“Once there is a sense that prices have stabilised, more people will be willing to buy. I don’t know what the level is and if it is across the country. It is not clear that in some parts of the country, there is excess stock.
“I think we need the market to clear (the excess stock) and with growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier,” he said.
With PTI inputs