Home loan rates to stay hard for a while

May 24, 2007: Home loan borrowers may have to wait a while before they see interest rates soften unless the Reserve Bank of India relaxes some of the fiscal curbs it has imposed on banks as Rajiv Sabharwal, Senior General Manager at ICICI Bank, and in-charge of its home loan division says.

With loans no longer cheap, and the ongoing correction in real estate prices, the demand for home loans is also expected to slow down marginally, Sabhrawal said. The home loan industry grew by 25 per cent in 2006-07 compared to the previous year, but the growth is expected to come down to around 18 per cent in the current financial year, he added.

Sabharwal said the correction phase in the real estate industry was expected to continue till September. “During the festival season the market should see the reversal of the current trend,” he added. Real estate price are expected to correct between 15 to 20 per cent in certain pocket from its peak level.

According to Sabharwal, the real estate sector will again witness the same kind of buoyancy it showed last year in 2008. Demand is a function of cost of funds - the interest rate- and the price of the product, he noted. In the next eight to 10 months, he maintained, both these would undergo changes.

The current trend towards price correction would be completed, and they would stop falling any further. Simultaneously, given the inflation trend, the interest rate would also start softening during this time.

The main issue was availability of housing in certain areas. Prices would remain inelastic in those region, he added. There were certain pockets in almost all the cities where prices had not seen any correction due to the fact no new products could be made available.

In the case of Delhi, for instance, since the demand is far more than supply, there has been hardly any correction, but there is certainly some correction outside Delhi where supply of fresh products is coming or expected to come.

In fact due to rise in the interest rate average size of the home loan in the last couple of years has come down to Rs 12 lakh from Rs 14 lakh a year ago. Due to substantial rise in the interest cost, the borrowers eligibility has come down.

However, banks have not seen any slippage in their book. "The increase in interest rate and subsequent increase in he monthly installments have not affected the portfolio almost all the borrowers are the end users," he said.

Source: Hindustan Times