Thursday, February 15, 2007

Banks to hike home loan rates further writes
A key player in the home loan market, HDFC on Thursday said it would hike housing loan rates by another 0.50 per cent this month-end or early March.

"After the CRR hike, our margins, presently at around two per cent, are under pressure and we will raise the interest rate to maintain that spread," HDFC chairman Deepak Parekh said.

A HDFC press note announced that interest rates will be reviewed next week. HDFC's current interest rates are 11 per cent (fixed) and 9.50 to 9.75 per cent on floating loans.

This would be the second time within a month that HDFC would be raising home loan rates. Earlier this month, it raised the rates by 0.5 per cent after RBI announced a 0.25 per cent hike in overnight lending rate, repo, in its monetary review. ICICI Bank had also raised home and car loans by one per cent then.

The government-owned Punjab National Bank, Bank of Baroda and Bank of India will hike interest rates across-the-board from February 16.

Bank of Baroda and Punjab National Bank have hiked prime lending rates by 50 basis points each to 12.50 per cent p.a. and 12.25 per cent p.a., respectively.

The rate hikes follow a 50 basis points hike in cash reserve ratio by the Reserve Bank of India effective in equal phases from February 17 and March 3, which would suck out Rs 14,000 crore (Rs 140 billion) out of the banking system.

Banks are raising the lending rates to make up for the increase in cost of funds, loss on account of zero-interest CRR balances and depreciation in marked-to-market investments as yields harden.

However, ICICI Bank has decided to hold interest rates charged to existing home loan borrowers.

"The bank may increase interest rates incrementally across all segments of customers including lending for automobile purchase. For housing loans, we are choosing not to increase rates for existing floating rate borrowers," ICICI Bank's executive director V Vaidyanathan said.

ICICI readies Rs 1000 cr, 44-floor Hyderabad hub

DNAIndia reports

HYDERABAD: If it is real estate in Hyderabad, then it has to be high rise. Latest to catch skyscraper syndrome is none other than ICICI Bank, India’s largest private sector bank, which is setting up a swank new office in the city - all of 44-stories and costing a whopping Rs 1,000 crore.

The building will come up over eight acres of prime real estate in the upcoming Financial District close to Hi-Tech City technopolis.

It will have other major financial institutions such as UBS and Franklin Templeton for neighbours.

The campus will house 25,000 employees who will among other things provide back office support to all other ICICI operations across the world.

“This will be the biggest ICICI office in the country,” said B P Acharya, vice chairman and managing director, of the AP Infrastructure Corporation (APIIC), talking about the project.

The bhoomi pujan for the project was conducted two weeks ago. K V Kamath, the bank’s managing director and CEO, could not make it for the event as he in Davos attending the World Economic Forum conclave.

100-storey towers coming up!

Interestingly, even though ICICI Bank’s will be one of the tallest offices in the country, it could nevertheless be dwarfed in Hyderabad.

The AP Infrastructure Corporation itself planning to build a 100-storied structure of its own in the planned Business District right next to the Financial District. The bids for the Business District are to be awarded soon with six companies in the race to bag the contract.

But that’s not all. Lanco Infrastructure is yet another company that is planning to build a 110-storied apartment and commercial complex, apart from 24 other high rises of 24-stories each at an information technology SEZ that is constructing a stone’s throw from the Hi-Tech city area.

Realty scrips hit 3-mth low

Business Standard reportd
Realty and construction stocks fell to three-month lows on the BSE, with investors offloading the scrips in the last few trading days.

Public sector banks' proposed move to raise prime lending rates and the RBI's hike in cash reserve ratio (CRR) led to a steep fall in realty and construction shares, many of which fell over 30 per cent from their all-time highs.

The weak sentiment saw Sobha Developers (Rs 754), Akruti Nirman (Rs 415), Parsvnath Developers (Rs 276), Lok Housing (Rs 236.55), DS Kulkarni Developers (Rs 239), Ansal Buildwell (Rs 109.45), Unitech (Rs 373), HCC (Rs 110.15) and BL Kashyap (Rs 1,215.60) etc hit their three-month lows on the bourses today.

Rahul Rege of Brics Securities said it was a case of exuberance becoming rational now. Rise in share prices on the basis on land bank was justified only up to a point. If an investor had bought a realty stock influenced by the momentum, he was in trouble. But, if the decision was based on fundamentals, they could still stay investments, he added.

He said the squeeze in bank credit to realty sector might also have contributed to the sudden dip in valuations. "I think there was too much excitement over realty stocks based on their future earnings," he said.

Ansal Buildwell, Lok Housing, Tantia Constructions and Peninsula Land fell over 50 per cent each, while prices of PBA Infrastructure, DS Kulkarni, HCC, Patel Engineering, Ansal Infrastructure, Sobha Developers and Unitech fell in the range of 30 per cent to 50 per cent from their all-time highs.

The stocks of the newly listed realty and construction firms such as Parsvnath Developers, Akruti Nirman, Lanco Infrastructure and Unity Infraprojects fell below their offer price.

Akruti Nirman was trading at Rs 420.25, 22 per cent lower than its issue price of Rs 540 on the BSE. Unity Infraprojects traded at Rs 562.20, 17 per cent below its offer price of Rs 675, Lanco Infrastructure was down 16 per cent at Rs 202.05 against its issue price of Rs 240. Parsvnath was trading just above its issue price of Rs 300.

Wednesday, February 14, 2007

Real estate chat


Want to invest in realty? Wait for govt guidelines'

Questions poured in from every corner as Kekoo Colah, executive director, Knight Frank (India) Pvt Ltd, came online for a chat on real estate on Wednesday. Colah took his time studying each question thoroughly before coming up with well thought out answers.

Here is the transcript of the scintillating chat:

Kekoo Colah says, Hi, this is Kekoo here; let me attempt some of the questions received.
Ambrish asked, Is the real estate boom going to continue, given the fact that home loan interest rates are increasing and also there are talks about removing the tax exemptions on home loans....
Kekoo Colah answers, at 2007-02-14 15:08:05Demand factors remain very strong across real estate sectors. Please understand that home loan interest rate increase will affect, to some extent, only the residential sector. Even here there is significant pent up demand which will not be very affected by the interest rate increases, but those looking at 2nd and 3rd home purchases for investment will reconsider.

rana asked, will the government succeed in breaking the builders lobby to contain the flaring realestate price??
Kekoo Colah answers, We tend to blame the govt and hold them responsible for everything. Real estate prices have gone up substantially over the past 3 years, but very sharply over the last 1 year, because of huge increase in demand and inadequate supply meeting that demand. With economic growth at record levels, sentiment so positive, consumer led growth, easy availability of finance and interest rates having gone down (compared to 16-17% a decade back) the demand for houses, offices, shops, etc has hugely increased. To bring real estate product to the market requires some minimum lead times and this is also one reason why prices have gone up to such an extent. The best approach for the govt is not to curb demand but debottleneck any supply constraints (transparency of rules, consistency, simplification, etc.)and let the market forces do the rest.

pmp-kannan asked, hi, if my main aim is liquidity then is real estate the real destination for investment? i stay in bangalore. so is it advisable to buy real estate in Bangalore or say 50 kms outside bangalore? which will be more beneficial? thanks in advance
Kekoo Colah answers, No,real estate is a fairly ill liquid asset class to invest in. Govt has several months ago announced that real estate mutual funds will be permitted, but detailed guidelines are still awaited. Once these are permitted, the general public would be able to invest in the real estate sector and have the required liquidity; please wait until then.

rakesh asked, up to what time this realestate boom continues??
Kekoo Colah answers, I wish I were a fortune teller but, unfortunately, I am only a real estate professional unable to give you a precise answer.

saurabh asked, With the property rates + interest rates going up and up, the way it is, soon market would not be able to sustain itself. If so, when do you see that happening and how should a buyer insulate himself from this?
Kekoo Colah answers, Individual investors (as opposed to funds and institutional investors who have a good knowledge base and perspective of the market) should assess the quality and reputation of the developer, their track record and product being sold before taking any investment decision. Good titles to the property are an absolute must as this is a problem area in India and, because of the time delays involved, any litigation can be expensive and lengthy.

dev asked, what do you foresee as he trend in the next 1 yr for commercial property in gurgaon
Kekoo Colah answers, Positive, as there is significant demand for commercial property from corporates and the IT / ITES sectors to be located in the Gurgaon area.

Vivek asked, Hi Colah!! As inflation is going high do you think within 2 years real estate will come down?
Kekoo Colah answers, Minor corrections in micro markets across the country are bound to take place periodically, but the general trend would continue to be upwards unless there are some serious untoward economic or political developments which affect growth and sentiment.

Click asked, Looking to buy a flat in Mumbai. Should or wait.
Kekoo Colah answers, I do not know if you are purchasing this to live in or as an investment. In either case, I have addressed the issues you need to be aware of in some of the earlier answers.

nikhil123 asked, Dear Sir, In Delhi/NCR, real estate prices have gone up by 2-3 times in last 2 years. Do you feel that it will come down from this level? Or would it settle down near this level??
Kekoo Colah answers, What you say is, in fact, correct for many other locations as well. I think we have witnessed a fundamental and structural shift in the market and it is quite unlikely that prices, if and when they do correct, come down to the levels we used to see 2-3 years back.

Karthik asked, Has an spurt in the number SEZs created a new benchmark in real-estate, in metros - i.e. is the real-estate boom here to stay.
Kekoo Colah answers, So far we have only heard a lot of news about people wanting to set up SEZs. Even after there is full clarity and consensus on the SEZ policy, it will take several years before significant amount of product comes into the market. What we will see happening before that are a no. of township developments across the country and these will help to stabilise price increases in the metros and other cities as there will be good quality options available.

arvindagarwal asked, If the FDI limit increases in near future what will the effect
Kekoo Colah answers, FDI limit for what? minimum area requirement, minimum investment? FDI norms were revised and made less stringent in March 2005, post which India began to see serious investors and developers considering real estate projects in the country. Given the opportunities that the Indian market offers, foreign interest can only go up.

Tuesday, February 13, 2007

RBI ends the party, loan rates will go up

DNA India reports
MUMBAI: If you have been partying hard on rising salary levels and big gains from a bull market, here’s a sobering message: slow down, or else…

The Reserve Bank of India (RBI), worried about a runaway price spiral — wholesale inflation is rising at 6.6 per cent annually — has fired yet another warning shot.
In a move aimed at choking consumer lending, the central bank impounded Rs14,000 crore of bank funds through a device called the cash reserve ratio (CRR). The CRR is being raised in two stages by 0.5 per cent to 6 per cent by March 3, which is the highest level since November 2001.

The impending cash crunch will force banks to raise everything from home and car loan rates to corporate lending rates, perhaps by another 0.5-1 per cent. The finance minister’s recent call to public-sector banks to hold the line on home loan rates is thus a dead letter. State Bank of India managing director TS Bhattacharya has gone on record to say that both lending and deposit rates may need to be raised again.

“The moment you impound funds, there will be a shortage of deposits and banks will get desperate to get more deposits in the market. The shortage of funds will affect all segments,” Bhattacharya told Bloomberg.

A spokesman for housing finance company HDFC, Mahesh Shah, concurred: “Interest rates will move up on all consumer loans.

The question now is by how much.”

The stock markets are widely expected to react adversely today, since banking, real estate, and infrastructure stocks could face the heat. “The RBI move has taken everyone by surprise. The markets will open with a downward gap on Wednesday and I see the Sensex closing at least 200 points down from Tuesday’s close,” said SP Jain, managing director, Networth Stock Broking.

The good news for new buyers is that prices may start to descend from stratospheric levels. Manoj Motta, general manager of K Raheja Corp, said: “This move of the central bank could trigger a cycle whereby housing finance companies may slow down their disbursements and hike interest rates. Since property prices are already very high, this may hit the buyer’s purchasing power in a way that will send prices rolling down.”

The central bank has been forced to act because high growth — the economy grew 9 per cent last fiscal and could grow 9.2 per cent this fiscal — has boosted inflation. It will get government support for the move since elections are due in Uttar Pradesh this summer, and are already underway in Punjab and Uttaranchal. No politician can hope to win elections with prices of essential commodities soaring.

How the CRR hike affects you

* Home loan rates will rise by 0.25-0.5%
* Auto, personal loan rates will also rise
* The stock markets are likely to crash
* Equity and income funds will do less well
* New issues won’t yield instant gains
* How companies will be affected
* Interest costs will rise for most firms
* Corporate profits will start falling
* Raising money from markets will become tougher
* Borrowing abroad will become cheaper
* Convertible bonds will be harder to sell
* How government will be affected
* The economy may start slowing down
* Govt will have to borrow at higher rates
* Tax revenues could start tapering off
* Room for manoeuvre in budget narrows
* High interest rates will strengthen the rupee

How tighter money will benefit you

* Bank deposit rates will now fetch you more
* House buyers will find prices moderating
* You can pick up stocks cheaper now
* Short-term stock losses can act as tax shield
* Inflation could start falling after a time lag


* Rework asset allocations from equity to debt
* Pre-pay home loans as soon as possible
* Avoid expanding credit card outstandings
* Stay liquid to buy stocks that fall sharply
* Save more of income as opposed to spending

Is the realty bubble about to burst?

DNA India reports

Timestamp 03-JAN-2007 12-FEB-2007 %drop
ANSALINFRA 944.15 744.60 21.14
GESCOCORP 877.75 616.50 29.76
PARSVNATH 468.45 301.55 35.63
SOBHA 1001.80 825.70 17.58
UNITECH 485.50 421.85 13.11

Real-estate stocks, which were a hot favourite with investors only some time ago, are suddenly being shunned.

Why have these scrips lost lustre? Does it have anything to do with a property price correction? Leading developer and Mantri Group chairman and managing director Sunil Mantri thinks so.

"The current real-estate market is overheated and there could be a small correction," he said. "In some places, it is already happening. Over the past few months, property transactions in Mumbai have gone down by 20%. High prices and rising home loan interest rates have affected the buying power of people and so they have adopted the policy of wait and watch."

Property prices across Mumbai range from Rs 4,000 to Rs 50,000 per sq ft. This, Mantri believes, could be the peak from where prices go downhill.

Consultant Ashok Narang of L Lachmandas & Co sees the meltdown in real-estate shares as a conspiracy of builders to keep DLF Developers, which will soon be launching its Rs 10,000 crore IPO, out of the market.

"DLF has paid deposit on plots across India and would be acquiring them after it raises money from the IPO," he said. "Many other real-estate firms are also eyeing those plots. These firms are pulling down real-estate stocks so that DLF is not able to get a good issue price."

Narang does not agree that soaring prices have taken properties beyond the common man's reach. "If property prices have risen, then salaries have also gone up," he said.

• Biggest acquisition! : View Special

For Anuj Puri, managing director, Trammell Crow Meghraj, the slump in real-estate stocks is a reflection of a speculator's mood and not a consumer's. "At these prices, property is no longer attractive to a speculator, but demand from a real buyer is still there," he said. "However, he will now shift from central Mumbai to the suburbs.

As long as the supply doesn't meet demand, prices will continue to move up. Though, in some pockets like Nariman Point and Andheri, which have overstretched themselves, one could see a correction."

But people associated with the property market say demand has slowed in the last two or three months, and volumes are lower, especially in markets like Mumbai, Chandigarh, Delhi, Bangalore, and Pune.

But they also add that "though supply has increased, there is no major worry visible among builders as their resistance to hold on to their stocks has increased."

While there are no indications of a drastic slowdown in demand, it may weaken in a few months.

"By June-July, there should be some correction as more supply is coming to the market, interest rates are going up, and demand is not strong," said a consultant.

"Weaker builders who don't have holding power may trigger a correction." Lastly, the budget is also being keenly awaited by the industry.

Monday, February 12, 2007

CNBC TV18 interview on interest rates

Ajit Dayal of Quantum Advisors
Q: What are your thoughts on this whole interest rate inflation cycle and particularly on the financials, how are you translating that view?

A: Our view again is that interest rates will increase, we believe that the government ten year bond will be probably closer to 8.5-9%, inflation will be a lot worse than people expect and the government and the central bank will have to keep on raising interest rates.

The effect of that in our view will really be a lot on property prices, we have seen over the last two-three years a huge ramp up in property prices across the country. I can tell you what I am reading about floor or the property over the last couple of weeks is that there has been a 50% decline in property prices over the last one year in terms of bare land and suddenly people who were really confident that they are going to make tonnes of money on property development. Some of the largest developers in America like Toll Brothers are leaving money on the table, they have bought land, they have paid deposits but because there is no demand in the US, it is just walking away from it and they are letting their deposits go.

In a similar way, you could see with the interest rates increasing particularly home loan rates increasing. If prices go up and the cost of money goes up at the same time, you could see a slowing down in demand for residential property, for commercial property at a time when supply is increasing many folds.

Some of the numbers that we have heard in the month of December and January for forecast about what is going to happen, there was one number that I think Gaurav Dalmia gave me where he said that in Kolkata the new supply of property is something close to 12 million sq ft over the next two years. The actual demand in Kolkata in 2006 was about the one millions sq ft, so you have got 12 million of new supply and 1 million of actual usage over a last one year. That is a huge growth that is required on the demand side to absorb all that new capacity and he gave me such other numbers for the host of other places across India.

So with the cost of borrowing increasing, with prices of real estate finished products and on land increasing we believe that the demand side may slow down and there could be a very sharp decline actually in property, which will affect to some extent everything else, the guys who sell the air conditioners, the guys who sell the refrigerators and everyone was planning to sell things around all of that. But barring that one sector in the economy, they are very optimistic on India.

We believe that India can grow by 6.5% per annum for next five-seven years without a problem; we are not yet believers on the 8-10% at all because we believe that there is no infrastructure to support that kind of growth on a sustainable level. So we have been skeptical of that number of 8-10% but 6.5% number for India for India for the next five years twice the global average, fabulous managements, very good companies buy India, that is our view still.

Property stocks slide as interest rates crawl up

Economic Times
MUMBAI: Fears that property prices could be headed for a meaningful correction seems to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.

With interest rates gradually crawling higher, players are worried that demand for property could be hit. Stocks of real estate majors like Mahindra Gesco, DS Kulkarni, Ansal Buildwell and Parsvanath Builders and Peninsula Land have been languishing over the past one month.

Shares of Mahindra Gesco, which closed at Rs 852.65 on January 8, has slid to Rs 645.35 on February 9, down 24%. DS Kulkarni Developers has come down from Rs 387.05 to Rs 304.10 during the considered period, down 20%. Parsvanath Developers slid from Rs 440.25 to Rs 339.20 during the period, down 23%. Peninsula Land, Ansal Buildwell and Sobha Developers have also fallen by around 23%, 22% and 17%, respectively over the past one month.

Said Nikhil Thakker, head research, UTI Securities, "Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom). Hike in lending rates and peaking real estate prices could force the sector towards a slowdown."

Market watchers predict that it would take some time for the sector to regain its lost lustre. The decision to hike interest rates has not gone down well with most builders. "The current real estate boom has largely been contributed by rising income levels and affordable interest rates.

Hike in interest rates and skyrocketing land prices may hit the offtake initially. But we do not see the impact to be very significant,'' said a Mumbai-based builder, adding, "Real estate prices will not impact us as we have sufficient land bank to complete our announced projects. Probably, we will sell our space adding a bit more to the price tag."

Being demand-driven, the realty sector still appears to hold promise with several housing and infrastructure projects coming up at various parts of the country.

"Interest rates on home loans may rise, but this will not change the fact that people need homes. It will only result in people buying homes in less-preferred locations. This will, in turn, force builders to move away from metros to two-tier and three-tier cities.

This trend will automatically negate the concentration of price in a vantage spot," said Mangesh Korgaonker, director general, National Institute of Construction and Manufacturing Research (NICMAR), Pune. According to sector analysts, fresh IPOs by realty companies will pep the sector up occasionally during the days of lull.

"Short-term investors should be careful about sudden dips in stock prices. At current levels, investors, with a long-term view, can start accumulating stocks of companies with good fundamentals. Those who are currently holding realty stocks need not panic; prices will start moving up steadily once the industry factors in raised interest rates and people start booking spaces all over again," said an analyst tracking the sector.

Sunday, February 11, 2007

Left home alone with loan rates

Chintamani is more worried these days. And not without reasons. Ever since he has taken a home loan, he’s seen interest rates going northwards, with no respite in sight. So much so that during the last two-and-a-half years alone, home loan rates (floating) have increased from 7.5% to 11.75%, forcing the EMI for a 20-year loan go up by around 35%.

Moreover, despite government assurances, bankers and experts see no softening of rates at least till the next one year or two, implying more worries and hardships for the people like Chintamani.

Says Deepabh Jain, business leader - mortgages, GE Money, “Interest rate follows a cyclic trend. 2002 to 2005 saw a downward trend in the interest rates and from the beginning of 2006, rates have gone up by approximately 2.5% to 3%. The rising trend is likely to continue for some more time and with current market conditions, rates are not expected to stabilise for the rest of the year.”

This means more trouble for home buyers, particularly for home loan seekers. “Home loan seekers today have to contend with the double whammy of rising interest rates coupled with sky-rocketing asset prices. While the home loan rates have gone up sharply over the last one year, the asset prices have moved by an average of 18-22%. As a result, homes have started moving in the range of unaffordability for the average home buyer,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

Thus, besides the houses becoming unaffordable, the current trend of rising interest rates is a matter of concern for consumers as even small upward changes in the monthly EMIs can play havoc with their personal finances. What, however, is the way out? The home loan seekers may postpone their plan to buy a new house for some more time, but what about the old customers? Should they switch from a floating rate to a fixed one or start prepaying the loan?

Says J S Grewal, president-operations, Religare Finvest Ltd, “Consumers who have already taken home loans do not have too many options at this juncture. It would, therefore, not be advisable for people with floating rate loans to shift to fixed rates, since most banks charge a premium of 1 to 1.5% for fixed rates over floating rates. In my view, however, home loan rates are not expected to go beyond this band in the coming year or two. Hence, paying this premium upfront today would not be advisable. Banks also charge a fee for permitting such a switch. This would also add to the overall cost.”

Rakesh Singh, business manager - mortgages, Standard Chartered Bank, is of the same opinion. “Floating rate loans are cheaper by 100-150 bps compared to fixed rate loans. Also, switching from floating to fixed attracts an additional fee of around 1-1.5%. We feel interest rates in the short-term are not expected to increase by more than 50-100 bps. Hence, our advice would be not to shift from a floating rate loan,” he says.

The case of home loan seekers, however, is different. “Going by the trend, one cannot completely rule out the possibility of home loan rates inching up further. This being the case, home loan seekers should consider opting for a fixed rate loan (i.e. fixed for 3-5 years).

This will protect them from a potential interest rate hike in the near term. At the end of the said 3-5-year term, they have the option of considering either to continue with the ‘fixed’ rate (if interest rates continue to rise) or migrate to a floating rate loan,” informs Kapur, adding that “however, in case interest rates were to decline going forward, the truly fixed rate loan will not reflect the fall in interest rates and the consumer will forfeit any chance of benefiting from a decline in interest rates.”

Jain agrees. “Interest rates are not looking to stabilise for some time and with property prices going up, decision to wait may not be the right approach. It is suggested that consumers opt for a fixed rate for the initial years and subsequently be on the floating one,” he says.

Put simply, your home loan will be a lot more expensive, but still it is better to go for it rather than wait for interest and property rates to come down.So far as prepayment is concerned, this option looks ideal, but should be handled with care.

Jain is of the opinion that prepayment is not a good option considering returns on the investment with any other instrument is much higher. For instance, take the example of a Rs 25-lakh loan for 15-year tenor at 9.5% IRR. On making part-payment of Rs 5 lakh, the tenor is reduced to 119 months, with the total savings in interest amount being Rs 11.11 lakh. “If the same 5 lakh is invested in fixed deposits with at least 9% returns, earning for 119 months will be Rs 12.17 lakh, which is over Rs 1 lakh higher than the savings made in the interest. Similar investment in stock markets or other market instruments can fetch even better returns,” advises Jain

Moreover, prepayment is an option that comes mostly with a prepayment penalty clause which is generally based on outstanding principal. “This prepayment penalty ranges from 3 to 4% of the principal outstanding. So, the amount of penalty would vary from consumer to consumer, depending on principal outstanding,” says Kapur.

Thus, if a consumer has the money to prepay the outstanding home loan, he must calculate the total Net Present Value (NPV) of both the options, i.e. regular instalment vs prepayment. The option with the lesser NPV is preferable.

Of course, however, if you are making the part payment from your own fund, this generally doesn’t attract any penalty. But make sure that there isn’t a prepayment penalty associated with your loan.

Says Singh, “Prepayment decisions should also be taken by customers depending upon their cash flow situation -- availability of surplus funds. Customers with surplus funds should look at the option of maximizing their investment returns based on their risk appetite.”

Besides, other considerations like tax savings on account of principal repayment and interest should also be taken into account. The principal repaid in a home loan instalment is currently allowed for a deduction up to Rs 1 lakh under section 80C. You can also claim up to Rs 1.5 lakh in interest payments as a deduction from your income, the combined deduction being up to Rs 2.5 lakh. Not a small amount to be ignored! Also, you should clear your non-constructive debts such as credit card, personal and car loans first before focusing on your home loan.

Experts are also of the view that the current trend of rising interest rates is likely to put a lot of pressure on financial institutions offering housing loans and will force them to review their portfolio.

“They will now have to be more careful about while assessing individual’s ability to service the loan being offered. This is good as the tightening of norms will result in lower NPAs for the banks and help them earn better profitability. This in turn will ensure that genuine buyers/investors with adequate finance capabilities remain in the market providing an overall sustained growth for the real estate sector,” says Varun Pawha, director, Pawa Builders. Thus, actual users are also likely to benefit as it will deter speculators from over leveraging themselves and cornering/hoarding housing flats for speculative gains.

In the final analysis, prepayment makes lots of sense. After all, it’s a great feeling owning one’s own house, and residing in a debt-free world. But if wishes were horses, wouldn’t everyone have been riding them?