LOWER CUT! - Rates down, but not enough!

Created on 29.01.2017 19:38:07
LOWER CUT! - Rates down, but not enough!

The real estate sector is waiting for the Union Budget with bated breath. The number of deals in the market came crashing down during the demonetization drive in November-December and homebuyers are waiting for a huge cut in home loan rates--to around 7%--to make their next move.

Cheap home loan rates are not the only factor driving home purchasing sentiment.But it is definitely one of the key factors for a family, especially when it comes to buying their first home, Ramesh Nair, COO (business) and international director of JLL India, said.

Home loan interest rates become even more relevant for the value or budget-home buyer, as every rupee reduction in the EMI can propel a purchase decision. Prime Minister Narendra Modi recently announced subsidies of 4% and 3% on interest on home loans of up to Rs 9 lakh and Rs 12 lakh, respectively.

However, if the government wants to revive the housing sector in metro cities in a big way, subsidies should be given on bigger loans--of up to Rs 50 lakh at least--and household income limit to avail this facility should be increased from Rs 6 lakh per annum at present to Rs 12 lakh per annum, a banker said.

The banker argued that subsidies can be given either in the form of rebate in income tax against the interest payment or directly in the form of subvention. If the home loan rate is brought down to around 7%, the sector is likely to see a turnaround, which will benefit the economy in a big way.

Revival in the real estate sector will create jobs for skilled and semi-skilled labour which, in turn, will create demand for other consumer goods.

The government would earn more revenue in the form of direct and in direct tax collections over the cost it will incur in giving the subsidies, and have a sustainable model to boot, Getamber Anand, president of Credai, said.

People who wanted to own a home but kept waiting for prices to correct could not have hoped for a better New Year gift than what the State Bank of India (SBI) announced, on January 1--a reduction in one-year marginal cost of lending rate (MCLR) to 8%, from 8.9%. A home loan of Rs 75 lakh, which was earlier available at 9.1%, is now available at 8.6%.

The SBI slashed interest rates to the lowest in a decade, forcing rivals to follow suit in the fight for market share. Several other banks like Union Bank of India, IDBI Bank, Punjab National Bank, etc, have since reduced their home loan rates. The cut, though, appears not sufficient.But, banks are finding it difficult to cut rates further, as deposits rate is high and the interest cost in the international market remains strong. Therefore, if the government wants to revive the market and, the economy thereby, it must cut the effective rate by giving more subsidies.

Besides this, developers are also expecting the Budget to give them tax rebate on the income from the housing sector.


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