Liquidity, realty demand slump keep home loan rates in check
Dec 13, 2013
Source : The Times of India


CHENNAI: Home loan rates may have firmed up a bit in the last 10 days but the range is still lower than the July-August levels and a number of markets are already witnessing some price correction in under construction projects, say top banking sources.

Despite the recent hikes by the likes of HDFC, home loan rates are now in the "pre-July/August" levels and weak demand has prompted some degree of price correction in a couple of metro markets with under-construction projects seeing "15-20%" correction.

Sumit Bali, executive V-P, Kotak Mahindra, said: "Rates firmed up in July-September and almost everyone in the market hiked base rates four months ago. But right now, the lending rates are ruling at 10.25-10.75%, which is pre-July levels so from July-August levels, we are seeing rates moderating by around 25-50 bps." Kotak Mahindra cut home loan rates by 25 bps last week.

Recently, a number of banks raised rates. HDFC increased its rates by 10 bps. According to HDFC, this is an adjustment - when cost of funds comes down, rates are lower; when cost of funds goes up, rates are hiked. HDFC's new rates for loans up to Rs 30 lakh is 10.5% and for loans between Rs 30 lakh and Rs 75 lakh is 10.75%.

The country's largest lender, State Bank of India, revised its base rate to 10% from 9.8% in November. Accordingly, interest rates on home loans on floating basis now stand at 10.3% (or 0.3% spread over base rate) for loans upto Rs 30 lakh and 10.5% (or 0.5% spread over the base rate) for loans above Rs 30 lakh. During the second quarter of FY14, home loans accounted for 58% of retail advances of SBI. Of this, 78% was accounted by loans up to Rs 30 lakh.

Bankers say the reason why home loan rates are still relatively soft has to do with the liquidity side of the market. "The $34 billion that has come in through the tier 1 capital route and FCNR(B) deposits has gone mostly into retail lending since the demand is muted on the corporate side," said a top banker. "Also in July-August, some bankers adjusted the premium charged on base rate so the spread over base rate has come down."

What has also kept rates in check is that the demand for real estate isn't great right now. "Transaction for under construction projects have slowed down by 15-20%," said Bali. But while there has been a price correction in the property market in Delhi-NCR other metros like Mumbai have not seen enough correction to spur demand. Ditto for Chennai where "potential buyers are postponing their home buying for the moment in anticipation that prices would come down. But that is not happening," Srinivas Acharya, managing director, Sundaram BNP Paribas Home Finance said. The company's interest on home loans currently ranges from 10% and it is holding on to its rate for the moment.

With the busy season for banks and home finance companies commencing with the third quarter, companies like Sundaram are looking to prop up demand for home loans by conducting localised events across branches in association with builders. "Our conversion rate at such events is 10%, which is good as per industry norms," Acharya said.







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