Monday, December 08, 2008

Home Loans to be locked in for 5 years at 9.5%

It looks like Indian bankers are yet to learn from the wave of option ARM defaults hitting the US home-owner. If the text of the press release is to be believed the bankers will be lending upto 20L for 9.5% for a period of 5 years until the loan resets to the market rate. In today's enviroment the publicly listed builders need the middle income earning to buy housing and the only way they can get that to happen is to pressurize banks to lower lending rates.

As expected builders will now price homes at 25L white and everything above as black. If one things this will bring relief to the common home buyer they are in for a rude shock. Another trick the builders do is build jodi flats, i.e. flats which meet the middle income criteria but are adjacent to each other so that they can be combined by the high income purchaser. reports
Mumbai: Public sector banks (PSBs) are set to offer home loans of up to Rs20 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package announced on Sunday to spur spending and bolster sagging economic growth.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.

On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.


Krishna said...

This only will not solve the problem. Govt has to keep an close eye on builders otherwise they will try to find some loop hole. Reducing only Home Loans is the cause,

Anonymous said...

Even if the interest rates come to ZERO, it will not solve the issue.
In fact it is the very cause that gave rise to this mess. They can delay the plunge in prices at the max. But the declines would happen and no force on Earth can stop it.
Minimum 70-80% declines in India's metro areas.

Anonymous said...

I agree, the US market is a case in point. Greenspan and Bush drove down interest rates and created a bubble out of the real estate market. Real Estate builders in US brought land in some remote location and created an entire town!

People working behind cash registers with zero job security, zero savings and no credit history bought two houses!!

Reduction of interest rates to boost the real estate market will create an artificial bubble which will sink Indian economy and create problems for everyone the builders, the bankers, the tax paying citizens and dependent economic chains like retail, auto and so on.

However, at the end of all this the situation will be the same - collapse of home prices. So reduction of rates = postponement of the Crash! People who again get tempted and buy into this bubble will end up in deep deep mess. So wait till 70-80% decline happens and enjoy the bull market which then takes your RE investment to 300%!!

Anonymous said...

Friends it is finally demand and supply. Realx no point in jumping to conclusion.

Wait and watch we will come to know by June, who blinks?

Bindas Bhai

Anonymous said...

No one should pay attention to the troll Bindas Bhai

Anonymous said...

Actually this world runs on balance. For every 10 sane people there will be 10 insane.

So I am not surprised at the existence of Abdulla or Bindaas Bhai. The surprise part is that almost all the rest are so sane! My congratulations to all. Let's treat these fraudsters and criminals in RE - the builders, brokers, politicians and money-lendors properly this time around. One dog barking is just amusement...ignore Bindaas Bai.

Anonymous said...

Bhai, what magic is going to happen in June-2009? Is there any lottery’s results going to be declared?

As per the opinion of lot of economist, global economy will bottomed down in the second quarter of 2009 then it will stay there for some times then a gradual recovery will start. As recovery will be gradual, to reach to the same price level as 2007 it will take considerable time.

Who is driving the housing demand? Which sector is paying money to buy house worth of 50 Lakh?
--Manufacturing sector? Every one know manufacturing is not doing well, there are layoffs & production is been reduced substantially. Car companies have slashed down the prices to stimulate the demand.
-- IT sector? Ask your friends how many people has got pink slip. Don’t you know about the pay cut & hiring freeze in IT companies?
--NRI? Are in much more trouble as the US, Europe & Middle East is in deep recession.
--Business class people? They already have nice houses & they will not speculate in this volatile market.

Why realtors became unhappy even after stimulus package? Cause it only support apartment price up to 20 lakh where as builder want to sell it for minimum 40 lakh.

Market will recover only when people will have good paying jobs to pay hefty EMI.

So guys let it fall then pick up, minimum 50% price cut is guaranty.


Anonymous said...

By June 2009 most of the real estate companies will either be bankrupt or close to bankrupt.

Unitech stock price is at 35 rupees!! DLF has collapsed. Looks like the savvy investors already know what is coming in the near future. The way the charts look all these firms are headed for penury!

Anonymous said...

Masters of "Decoupling Theory" cannot fool around more and finally they have come out of a denial mode.

2009-10 will be a tougher year, says RBI governor

“IMF has revised its forecast for global growth and growth of emerging economies significantly. Reflecting that we would be doing our own numbers in our policy estimates in January,” he said.

Anonymous said...


The market in 2003-2008 seemed that there was no limit.

Every 3-4 weeks the sellers would jack up the price by 2-3 lakhs.

Now they ae unable to sell the houses

Andheri Malad goregoan kandivali borivali

Prices shoudl be between 1500 -3000only

When goverment assholes talk about affordable housing . They actually mean house built on the periphery of city that is places like virar, karjat etc.

The only thing that the goverment (i mean the people want money in their pockets)

Look at the life of a guy staying in say kandivali or borivali and works in say BKC .

He has to travel 4-5 up and down work like a donkey for 12-13 hours . What life!! and to think that he boughy a flat worth a crore !!!!

What a bum

Prices in Byculla or Parel or Mazagaon should be in the range of 3000-5000

Let these prices come to these levels and only then ppl should buy

Anonymous said...

US is moving 30 year mortgage to 4.5% soon. But will it fix the problem. NO, it will just prolong it. Houses are constantly declining and would keep declining till they reach affordability level.

Interestingly, the way stock market is tied to US stocks, Indian housing is going to see a major downturn. Moreover, people will not have money and banks will not offer credit. Layoofs would be massive. People are not prepared for this and all this may lead to high crime, suicides, divorces and mass RE dumps thereby plunging the prices to 2001 levels. My 2 cents.

I think people in India should worry about their jobs first. Housing is already toast. MBAs are screwed royally without oil.

Anonymous said...

Some Wise Said above...

Interest Rate reduction without credible credit history & job security will lead to further mess...Its hard truth

In suburb like Dombivli, where rate was approx 1200-1300sq.ft suddenly jumped to 2500-3500 & above when Regency built a large premium township pricing at Rs.3500 per sqft + Lifetime Club membership charges + Lifetime Society charges + Compulsary parking charges (Stilt & in compound). A 1000sqft flat costed 45-50lac in this tiny town where ppl cant board train in mornings, a parked auto causes traffic jams, 8hrs load-shedding & all decent jobs minimum hour away. Those flats are now being offered at Rs.2200 now and still 80% of 3000 flats are empty.

Re-sellers who are not learning still pricing their 10-20yr old flats at Rs.2500-3500 which they purchased at Rs.500 per sqft. White Rs.700-800 rate and rest black. Ridiculous...

I am one of the lay-off victms, lost 50k paying job where I worked since 5 years with mere 1 months notice & proper setlement etc..I will go on but will I dare to purchase home on 15year repayment commitment based on these false job security? Never, it was shattering for me and my family.

Rather than paying 20k installment for 15 years, I prefer 3-5-7k rents for next 5 years & buy house on cash in distant suburbs for old age & continue renting.

I wish from all my heart that these agent-seller nexus suffers and these guys loose everything they have earned..

indiahousingbubble, keep up good work of educating mislead buyers.

Anonymous said...

I ma glad the kind of response in this forum. One thing is sure that most of you guys are interested in buying homes.

Demand is huge and this will transcribe into sales instead of 3BHK or 2 BHK people will start buying 1BHK.

Inida growth story has received only temporary set back and even the builders know about it. Now these guys are focusing on Budget housing just to ensure cash flow to the organisation.

I am waiting to invest in these kind of projects, although margins will be low but instead of buying 5flats I can look at 15.

Govt is bound to come with subsidised loan to push the economy and this will have multiplying effect on our economy.

Gone are the days where you could buys house at 2000 and 3000 in Mumbai. You will never see them again. People who have missed out the bus last time will have to wait for a another cycle.

In 2004 one could buy a descent house with 6 years salary but now it is 16 years. If you consider your spouses income it will be roughly around 8 to 10 years. If you look historically i.e. after 96crash we still needed roughly 18 years of salary to buy a descent house.

Pal people who have not brought the houses then will have to wait god knows till when.

I still feel certain builders will further slash rates as an when they require fund, but CRASH I still have my doubts.

Bindas Bhai

Anonymous said...

Areas outside Mumbai like Thane , Kalyan, Dombivili, New Mumbai will see correction upto 50%. I maybe wrong.

Bindas Bhai.

Anonymous said...

Bhai, what magic is going to happen in June-2009? Is there any lottery’s results going to be declared?

Dear Vulture,

I always beleive that any comment either upside or downside must be substantiated with date otherwise it does not make sense. Since early 07 I am hearing about this crash and now people in this forum are talikng that it will take couple of more years.

People like you are like stopped watches Two times in a day you tell the time right.

Bindas Bhai

Vik said...

the question is not of demand and supply. It is a matter of affordability and common sense. Even if magically the bank loans you 1cr to buy a 2 bed apt, do you have the ability to pay it back at a 13% interest rate ? With the expats exiting Mumbai, the brokers will be forced to rent to the locals who make a fraction of what the expats do. Mumbai is headed for greater then 50% drop with prices plateauing at 5k sq/ft.

Anonymous said...

I am curious..

Whats your stake in this Bindas Bhai???

Why are you trying to convince others to invest now instead of waiting for the crash?

Are you
a)just a normal bored guy with plenty of time to kill?
b)good samaritan who is out to save us from missing out the oppertunity to cash in on great deals
c) someone from RE industry who is hell bent on being a contrarian

I can fathom why someone would go to such lengths to convince everyone. Also Aashis, realityrider, abdullah dissappeared and now you are carrying the torch... are these aliases of the same person cause I have never seen any two of these guys comment on the same blog..

Come on about time you come clean...

Anonymous said...

abdullah = bindas bahi = realityrider = Aashis. This is one guy highered by real state lobby to speculate prices on internet. ingore bindas bhai.

Prices are not about to correct, they have ALREADY CORRECTED by 10-20% in all over MUMBAI. Expect Further prices correction in comming 12 months.

- Jay

Anonymous said...

8 really, really scary predictions

All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.
-- Nouriel Roubini

Anonymous said...

Bhai, do you think that we are running some astrologer or fortune teller agency here? What is the time & date? We have a time line, which says the next year you will see the expected crash.
Why we should be worried about the ups & down time? Our strategy is to make money.
--In bear market, do a short selling.
--Do not invest in illiquid assets like home, which is going to correct minimum 50%.

What are the risks involved in buying home today?
 Jobs are not secured, so you may not be able to meet these huge liabilities & loose the down payment amount.
 For next couple of years prices are not going to come back to 2007 price level.
 High paying jobs has became rare, so you can’t hope on future income.
 Today, if any body will invest in time deposit in bank, he will get 10% risk free return, so this 10% gain from saving plus % drop in housing prices are gain for all potential home buyers.

Don’t get excited just looking at demand statistics. Even for Oil there is a huge demand globally but it has dropped to it’s 1/4th of peak price. High demand doesn’t mean people should buy at fourfold price.

Now can you explain what force is going to bring back global market to it’s 2007 level? instead of blabbering here.
If market is going to bounce back in next 6 months, why your friends & relatives are so much worried & unhappy with stimulus package?
Why they are sending promotional e-mails to every body that prices slashed down?when you know there is a huge demand.[Yesterday, we received two such e-mails.]

Guys, let it fall then only pick up, minimum 50% price cut is guaranty.

NOTE: God grinds slowly but he grinds very finely. So for fine results it takes time.


Anonymous said...

Dear Vik,

Request you to go thru the FDI Investemnt for this year maybe you will come to know how many expats are running away.

Dear Vulture,

You have a point to say, so do I, time alone will tell us who is right.

By June 09 I feel that we will come to know the liquidity situtation. I am hopeful that the interest rates will be around 7 to 8%. This will move the market.

Builders will always want more from the Govt and hopefully they will get knowing that the elections are round the corner.

As Jay mentioned markets are already corrected about 10 to 15%. Infact I see more correction in areas where the prices went abnormally high like Dadar(Shivaji park)went upto 22,000. This may come to Rs. 15000/

Areas like this have seen more correction. I am no one to predict the market, Guys like you are the one who are talking about 50% fall for almost two years.

Pal Wait and watch before jumping into conclusion. Always look into silent signals then the obvious.

Bindas Bhai

Anonymous said...

Refer this where supply & demand stands.

Anonymous said...

Anonymous said...


Anonymous said...


Anonymous said...

Bindass Bhai,
I think what you are saying is absolutely right. Most people on this blog do not know what they are talking.

I guess this is the time for you to buy more properties and flats. This way you can make a lot of money in 2009. For people who don't want to buy, please don't try to convince them as they will be left out for ever. But, you should definitely buy more before it is too late.

You should not be wasting your time here on blogs convincing others but getting out looking for bargains and buying them.

Anil said...

In fact there are many Bindass Bhai's who are certainly not doing this desperate arguments for free and many of them are working for major media houses. One of them is Time of India group (look at any property times supplement, any city edn) which is so desperate for the money and advt income these builder lobby is providing, they can go o any extend to publish any foolish articles and views which includes comments only from PBAP like Kumar , Gera. Their comments are published in articles to build the current trends but they never bother to take comments from a common who is struggling to have roof for many years. We don't these kind of free suggestions and as someone well said, they should go out and buy the properties right now…

Observer said...

One thing I like about the current housing bubble is that there are so many nice rentals. 10 years ago, it was hard to find a decent flat for rental in Bangalore. Now, just look at the choices and the number of nice empty flats! Every 3 years, I can move into another nice new 2BHK flat that some poor investor or NRI has been convinced to buy, and now has to rent out. Each flat that costs 15 lakhs and above must be rented out or occupied, otherwise it attracts a 1% wealth tax.

I would actually encourage more and more such "investors" to buy. The flat that I am staying at, is brand new (2007 construction), rental is only 14,000/month (price is 56 lakhs, so EMI is 60,000/month). This is great because I continue to save 45,000 Rs/month, and live in a really nice, modern place. The owner is a UK NRI. I have to thank him for buying me such a nice play to stay!

Once I am tired of this flat and it loses its "newness" and starts developing cracks and water seepage and other problems, I plan to rent another flat from a new construction coming up about 1.5KM from my current place. It looks luxurious, and it looks like some fools..err...I mean "owners" have bought many of these flats and I am sure they will be looking to rent them out soon.

I wish Bindaas Bhai and others like him would buy more and more flats in Bangalore so people like me can always have a good set of choices of new flats that people like me can rent and save our money, and get to enjoy living in their brand new flat heheheh.

Anonymous said...

The big builders are not only cheating the home buyers but they are pushing the small builders towards bankruptcy. Through the builders associations they are directing the other builders for prices hold, so once the small builder will fail they will not have any competition. If you still remember a remark by DLF, it’s a good opportunity to buy distressed projects(ref times of India). Through the builders association they giving false promise of economy to small builders that current crisis will end in next 6 months, so don’t worry, hold the prices. After getting the sermon from there, Bhai is telling every body “time will tell us wait till June-09”.

In Pune how many builders was there before 10 years?
So to eliminate the competition through the medium of PBAP the big builders lobby Gera, Kumar etc directing the small builders to hold rate so after bankruptcy there will be limited competitions. Gera, Kumar are the oldest fox in this business, they have so much money that they can weather such 2/3 economics storms. Builder should not forget what had happened in Kalyani Nagar land deal between one big & small builder.

Anonymous said...

Small, Medium, Big, Super Big real estate builders will come to knees since the party fuelled by cheap and easy credit is winding up.

The seemingly infinite reservoir (foreign investment banks, bruised stock market investors) has dried up. The people who were euphoric in delusional growth about "Prosperity" (real estate prices rising by 300%) have been caught by surprise. The panic reaction i.e. throwing some money here and there..."Stimulus Package" is all prevalent.

… is just the beginning of the end.

NRIs delay realty buys; 50% drop in bookings

Anonymous said...

Heh Heh Heh Heh..

Nice one about these stupid "investors" In fact I read in a previous forum where someone cornered this Bindaas Bhai that his investments have not even met inflation and the fact that he has actually lost money over the years. This Bindaas Bhai countered saying that he has made money by renting it out!! I am simply amazed at the stupidity of such morons.

A simple calculation by Bindaas might have saved money for him. So for example Rs 14,000 on a 56 Lacs flats. If you deduct the maintenance, electricity and other expenses (should include tax, but knowing Bindaas he would possibly do chori of tax). Nevertheless, say he gets about 10,000 as "profit" after deducting all outgoings.

Imagine what his returns are? A princely sum of 2% and about 4% appreciation on value. So, Mr Bindaas waits for 40 years to get a fantastic return of 6%!!! I mean, is he a moron? And he is proud of being a moron!! To wait 40 years and yet equal inflation or be below it!! I mean FD's would have been better option!!

heh heh heh heh such are the moron's, the builders have to con about RE as investment. I guess, if you have so many fools why would you bother with any other way to make money..just sell these priceless investment vehicles and sit back and enjoy.

To the others, I am not kidding. Do the math yourself. RE are not good investment vehicles, even after the bubble!

Observer said...

Shhhh Anonymous above. I may actually transfer to Pune in the near future.

Bindaas Bhai

Please buy more properties in Pune. I am not sure if I would have enough choices in Pune. Real estate is a fantastic investment, you will make more than 30%/year in profits.

Also, can you please buy flats which have a view of the outside rather than inner facing flats? Also, I need flats with vitreous ceramic tile flooring, so please only invest in those type of flats. If I have any other type of requirements, I will let you know. I am willing to pay rent of upto 15,000/month. I heard those 3BHK flats cost about 60 lakhs. But you will get good return, do not worry. Those flats are going to be 2 crores next year, so buy now. Oh, I forgot, I also need modern Jaquar fittings in the bathrooms, along with a bathtub. Remember, flats are the best investment in life, and it is your duty to help the nation by buying more and more.

Check if you have any savings, ask your family for any jewelry and any other source of income. Sell them immediately and buy some flats in Pune as soon as possible. Also ask your relatives, and see if you can take a loan from them, and book many flats as possible. I will know about my transfer in another few months. By that time, I want to be ready to move into a brand new flat to enjoy. Thanks!

Anonymous said...

Plush flat goes at 33% discount

Rates plunge as demand for apartments in upmarket South Mumbai dries up

Rajshri Mehta. Mumbai
Two weeks ago, electronics giant Philips India auctioned a 2,000 square foot apartment at Napean Sea Road for nearly Rs43,000 a sq ft —- a discount of 33% over the rate of Rs65,000 that flats in the area were commanding less than a year ago. The plush apartment is located in Citadel, a coveted address.
Observers say prices of premium residential projects in tony South Mumbai have fallen drastically. In the past eight months, sales of the most expensive apartments have gone into deep freeze.
"Investors have all but disappeared," said Akshaya Kumar, managing director, Parklane Advisory Property Services. "Developers who were earlier asking for Rs50,000 a sq ft have now expanded the price band and are now willing to sell for anywhere between Rs30,000 and Rs60,000."
Ram Yadav, chief financial officer, Orbit Corporation Ltd, said the last apartment he sold in Orbit Arya on Napean Sea Road was seven months ago at Rs57,000 per sq ft. The company has sold only four of 11 flats in the under-construction 29-storey project.
Flats at Orbit Haven have shrunk from 7,500 square feet to 2,500, and rates have been tamped down to approximately Rs45,000 from Rs55,000 a sq ft. At Orbit Grande in Lower Parel, the company is building smaller apartments of 650 sq ft to 1,200 sq ft and asking for Rs16,500 a sq ft.
A South Mumbai property consultant said on the condition of anonymity that a residential project with 11 apartments on Altamont Road has not sold a single unit since bookings opened six months ago. The rate quoted for the 5,500 sq ft apartments was about Rs55,000 then. "The project got the occupation certificate six months ago and the builder is now willing to negotiate a price of Rs30,000," the consultant said.
Other projects across South Mumbai have bitten the dust, too. Oberoi Constructions has stopped sales in Oberoi Skyz, a premium 65-storey building at Prabhadevi. The company has sold four or five apartments to bigwigs like the Future Group's Kishore Biyani and stock broker Rakesh Jhunjhunwala. "Investors are now willing to sell flats in Beaumonde, a residential tower at Prabhadevi, for Rs20,000-28,000 a sq ft from the Rs 30,000 they were quoting earlier," said broker Yashwant Dalal.

Anonymous said...

Unitech, most at risk among Indian developers

“The Bombay Stock Exchange Realty Index has plunged 83 per cent this year, compared with a 52 per cent drop in India’s benchmark Sensitive Index.” It is high time that the real estate companies started hiring Chapter 11 experts.

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