Narendra Modi government gives big home loan boost to housing in India; demand set to soar

Cheaper loans should boost demand and help revive real estate sector; apply to slightly bigger homes as well.

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, HDFC, 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.

Demonetisation: Actual home buyers benefit; developers roll out attractive rates and payment plans

The real estate sector, known as a safe haven for parking black money, was hit hard by demonetisation. The sector which was already going through as tough phase saw sales go down by 32 per cent during the October-December 2016 quarter compared to previous quarter as per Anarock Property Consultants. Apart from this there was a drop of around 60 per cent in new launch supply in the quarter.

Demonetisation along with other reforms-- Real Estate Regulatory Act(RERA) and Goods and Services Tax (GST)-- disrupted the real estate market at least in the short-term.

However, these reforms have turned out to be a blessing in disguise for the actual home buyers as the prices have remained almost stagnant or dipped a bit across major cities. "While a few cities such as MMR, NCR and Chennai have witnessed minor corrections in price, other cities - namely Bangalore, Pune, Hyderabad and Kolkata - have shown a small upward movement," says Anuj Puri, Chairman, Anarock Property Consultants. Now the developers are more focused towards clearing their existing inventory rather than launching new projects. This is ensuring that the home buyers who were waiting for the possession of their house are actually getting it and more ready-to-move-in projects will be available in the market. "The subdued demand and huge unsold inventory have led developers to maintain competitive prices to offload their existing inventory faster and complete their ongoing projects sooner," he added.

"Owing to the ongoing transformation, developers have also been offering attractive rates and payment plans to draw potential buyers. It is a great opportunity to book homes and cash in on the deals offered by developers," says Surendra Hiranandani, CMD, House of Hiranandani. Apart from this, the influx of liquidity with the banks due to demonetisation has also led to a drop in interest rates which has brought down home loans interest rates at almost a decade low. Now majority of the banks are offering home loan in the range of 8.35 to 8.5 per cent. Lower interest rates means lower EMI and thus increases the budget of the home buyers.

Also, the cash component or black money component has gone down after demonetisation claims experts which will be a big positive for actual home buyers as this will curtail the prices from going unreasonably high as we had seen during the previous boom.

"The funneling of unaccounted monies into the real estate sector has become virtually impossible because of the demonetisation move, which means that future growth in the sector will be based on much sounder and more sustainable fundamentals than ever before," says Anuj Puri, Chairman, Anarock Property Consultants. Also, the reduction of cash component will help homebuyers buy their dream house which was earlier difficult -- they couldn't buy due to the cash component despite the fact that they were capable of getting home loan and paying EMIs.

"In fact all property purchases today already take place on the basis of transparent cheque payments and legal online payment gateways in the post-RERA era. Real estate transactions happening on the basis of cash, or with any significant cash component, are inevitably going to be questioned by the authorities. Nobody wants their property investment to fall under scrutiny for untoward practices,"added Puri.

"Demonetisation needs to be seen in the context of a wider program of reforms in India which are significant in terms of the nation's economy, society and real estate sector. While it did result in some short-term pain for the sector there has been no long term negative impact. Demonetisation, coupled with the implementation of the Real Estate Regulator Act and GST reforms has boosted the confidence of investor and added much needed liquidity in the market," said Anshuman Magazine, Chairman, India & South East Asia CBRE.