More sops for home loans likely as demand
shrinks
February 23, 2007: There may be some good
news for all prospective home loan takers
despite the recent increase in interest rates.
To keep the housing sector buoyant, the finance
ministry is considering raising the tax concession
ceiling for home loan borrowers. At present,
interest up to Rs 1.5 lakh is tax exempt under
Section 24 of the Income-Tax Act. This is
expected to go up to Rs 2 lakh.
Representatives of the Indian Banks’
Association (IBA) and chairmen of some leading
public sector banks met finance minister P
Chidambaram a few weeks ago and requested
him to consider this proposal, among other
things.
The series of rate hikes by the Reserve Bank
of India (RBI) and increase in the cash reserve
ratio (CRR) by 100 basis points in three months
left most banks with no choice but to hike
the benchmark prime lending rate. Since all
other rates are linked to the prime rate,
future home loan rates also went up. “The
finance ministry’s proposed move is
seen as compensating any kind of demand slowdown
resulting from increased home loan rates,”a
source close to the development said.
The finance minister had requested public
sector banks not to increase home loan rates,
but they went ahead and hiked prime rates
by 50-75 basis points anyway, after the central
bank hiked the CRR last week.
The growth in home loans has already witnessed
a slowdown this year. From 35-40% in 2005-06,
growth has dipped to 30% this financial year.
Bankers said the demand for home loans has
declined, particularly in second-rung cities
like Chandigarh, Jaipur and Pune, which had
witnessed a huge boom in construction. An
LIC Housing Finance executive said, “Speculative
buying of real estate has been curbed, more
so in smaller cities.”
Demand has also slowed for home loans of
less than Rs 20 lakh. Analysts said so far
there had been little impact of the interest
rate hike in metros. But with double-digit
interest rates, demand was likely to dip in
metros next fiscal.
Source: Financial Express
