Good news in the time of terror attacks, recession and slowing Indian economy! Inflation fell sharply from 8% last week to 6.84%. Experts believe that inflation number may reach 4-5% by June 2009. Though bankers may not be too happy about cutting rates now and then, let's not forget that general election is in May 2009. Government might force public sector banks to lower PLRs.
Shall we gear up for another round of rates cut from RBI?
Friday, December 19, 2008
Thursday, December 18, 2008
Real Estate Industry Bailout
Rohtas Goel, CMD, Omaxe, said unsold property to the tune of Rs 20,000–25,000 crore remains stuck in the country. On the new interest rate regime, Goel said his company was not catering to the under-Rs 20 Lakhs category but added that it could start catering to the segment. “So we will not get any benefit out of this package which has come right now.” He added, “to promote the housing sector and to promote the affordable housing sector, we expected a little more from the government. The rate of interest for loans up to Rs 5 Lakhs should have been at 6.5%. The rate of interest up to Rs 30 Lakhs — and not up to Rs 20 Lakhs (as is currently given) — should be around 7.5%." Goel added that even as many developers were increasingly looking to focus on affordable housing, what happens to the existing projects that are stick now remains to be seen. “To bail out those projects, we need loans up to Rs 30 Lakhs come at a single-digit interest rate.”
Pradeep Jain, Chairman, Parsvnath Developers Ltd, echoed Goel’s views. “The bankers not charging any processing fee for loans up to Rs 5 Lakhs and minimum fee for up to Rs 20 Lakhs is a very welcome move,” he said, adding, “But even the current interest rate regime of 8.5% and 9.25% for the two brackets is too high. The industry was expecting an interest rate of about 6% for loans up to Rs 5 Lakhs.” Jain added that the Rs 5–Rs 20 Lakhs segment should be extended to Rs 30 Lakhs at the upper end. “At the same time, the government also needs to re-look at the interest rates beyond Rs 30 Lakhs. The rate of interest there needs to be cut to single digit,” he said.
Pradeep Jain, Chairman, Parsvnath Developers Ltd, echoed Goel’s views. “The bankers not charging any processing fee for loans up to Rs 5 Lakhs and minimum fee for up to Rs 20 Lakhs is a very welcome move,” he said, adding, “But even the current interest rate regime of 8.5% and 9.25% for the two brackets is too high. The industry was expecting an interest rate of about 6% for loans up to Rs 5 Lakhs.” Jain added that the Rs 5–Rs 20 Lakhs segment should be extended to Rs 30 Lakhs at the upper end. “At the same time, the government also needs to re-look at the interest rates beyond Rs 30 Lakhs. The rate of interest there needs to be cut to single digit,” he said.
Wednesday, December 17, 2008
Realtors want more
Reacting to the the announcement by PSU banks to cut home loan interest rates for small-ticket housing, Sanjay Chandra, MD of Unitech, said the company doesn’t have any benefits on the reduction in interest rates for loans up to Rs 5 lakhs. The good part, Chandra said, was the reduction in rates for the Rs 5–Rs 20 lakhs bracket, “the affordable housing segment, which most developers have been focusing on for the last few months and are looking to expand in.” “It is a big benefit — the rates coming down, no processing fees as well as the fixed nature of it because a lot of people didn’t like the uncertainty with the way interest rates were moving. So I think the fixed rate and also the only option possibility of downward revision is a good thing for the sector and for us in general,” Chandra added.
Reflecting back on what went wrong with the real estate story, Chandra said, “One of the biggest things that were affecting business was rising interest rates and of course the rising property prices, which took away affordability.” With property prices not rising anymore and interest rates coming down, he said real estate companies will now get real, end-user buyers. “This home loan package by the public-sector banks, which is valid till June, will encourage a lot of people to buy within that time frame. The next few months could be fairly good for the sector.”
Reflecting back on what went wrong with the real estate story, Chandra said, “One of the biggest things that were affecting business was rising interest rates and of course the rising property prices, which took away affordability.” With property prices not rising anymore and interest rates coming down, he said real estate companies will now get real, end-user buyers. “This home loan package by the public-sector banks, which is valid till June, will encourage a lot of people to buy within that time frame. The next few months could be fairly good for the sector.”
Monday, December 15, 2008
What does 2009 holds for the sector?
Good news for both industry and buyers! Inflation has come down from its October high of 13% to 8%. RBI since then has announced a series of rates cut- Repo rate has been reduced by over 200bp, while Reverse repo rate saw a 100bp decrease. CRR too was reduced by 150bp to inject liquidity in the market.
Today, which is December 15th 2008, as I write this article, public sector banks hold a press conference to announce major rates cut and other measures to boost real estate sector. The highlights of today’s meeting were:
• Rate for home loans up to Rs 5 lakhs will not be more than 8.5%
• Five-year fixed rate terms on up to Rs 5 lakhs home loans
• Banks to take 10% margin on home loan of up to Rs 5 lakhs
• No process, prepayment fees for home loans
• Home loan rate under package can fall if rates fall more, which is likely to happen
• Home loan of Rs 5-20 lakhs for maximum 20 years at 9.25%
• India banks’ margin for Rs 5-20 lakhs loan will be 15%
• India state-run banks will offer free life insurance cover for home loans
These new home loan rates will be effective Monday, December 15, 2008 and expire on June 30, 2009. This has come as good news to some developers while rest felt disappointed. DLF and Unitech have good presence in sub-20 Lakhs housing segment, which is also called “Affordable Housing”. Those operating in “affordable housing” hailed these rates cuts. Sanjay Chandra, MD of Unitech, said “It is a big benefit — the rates coming down, no processing fees as well as the fixed nature of it because a lot of people didn’t like the uncertainty with the way interest rates were moving. So I think the fixed rate and also the only option possibility of downward revision is a good thing for the sector and for us in general.” This might force and encourage other developers to focus on affordable housing. But the existing home loan borrowers felt dejected because these rates are applicable to new loans only.
However, these measures may not revive the flagging sector conditions because a majority of residential projects cost above Rs. 40 Lakhs i.e. where loans are above Rs. 25-30 lakhs. Industry insiders say that unsold property to the tune of Rs 20,000–25,000 Crores remains stuck in the country. Unless these properties are sold first, developers may not launch new projects or finish the under construction ones. To give a boost to this, developers are demanding an interest rates in the range of 7-8% i.e. back to the days of 2005.
With falling crude prices and global recession, Inflation should come down to the level of 5-6% by June 2009 end. So expect RBI to cut rates further by 100-150bp which we will bring the interest rates in single digit. This will give the much needed boost to the industry. Buyers, who are right now playing wait and watch game, will go for cheaper home loans. Expect another cut in prices in the month of January or February by developers who desperately want to flush out their inventories. More so costs of construction have come down by 10-15% due to decrease in prices of cement and steel. This cost should be passed on the customers as well. I will surely bet my money on real estate companies, especially bigger ones like DLF, Brigade and Unitech.
Today, which is December 15th 2008, as I write this article, public sector banks hold a press conference to announce major rates cut and other measures to boost real estate sector. The highlights of today’s meeting were:
• Rate for home loans up to Rs 5 lakhs will not be more than 8.5%
• Five-year fixed rate terms on up to Rs 5 lakhs home loans
• Banks to take 10% margin on home loan of up to Rs 5 lakhs
• No process, prepayment fees for home loans
• Home loan rate under package can fall if rates fall more, which is likely to happen
• Home loan of Rs 5-20 lakhs for maximum 20 years at 9.25%
• India banks’ margin for Rs 5-20 lakhs loan will be 15%
• India state-run banks will offer free life insurance cover for home loans
These new home loan rates will be effective Monday, December 15, 2008 and expire on June 30, 2009. This has come as good news to some developers while rest felt disappointed. DLF and Unitech have good presence in sub-20 Lakhs housing segment, which is also called “Affordable Housing”. Those operating in “affordable housing” hailed these rates cuts. Sanjay Chandra, MD of Unitech, said “It is a big benefit — the rates coming down, no processing fees as well as the fixed nature of it because a lot of people didn’t like the uncertainty with the way interest rates were moving. So I think the fixed rate and also the only option possibility of downward revision is a good thing for the sector and for us in general.” This might force and encourage other developers to focus on affordable housing. But the existing home loan borrowers felt dejected because these rates are applicable to new loans only.
However, these measures may not revive the flagging sector conditions because a majority of residential projects cost above Rs. 40 Lakhs i.e. where loans are above Rs. 25-30 lakhs. Industry insiders say that unsold property to the tune of Rs 20,000–25,000 Crores remains stuck in the country. Unless these properties are sold first, developers may not launch new projects or finish the under construction ones. To give a boost to this, developers are demanding an interest rates in the range of 7-8% i.e. back to the days of 2005.
With falling crude prices and global recession, Inflation should come down to the level of 5-6% by June 2009 end. So expect RBI to cut rates further by 100-150bp which we will bring the interest rates in single digit. This will give the much needed boost to the industry. Buyers, who are right now playing wait and watch game, will go for cheaper home loans. Expect another cut in prices in the month of January or February by developers who desperately want to flush out their inventories. More so costs of construction have come down by 10-15% due to decrease in prices of cement and steel. This cost should be passed on the customers as well. I will surely bet my money on real estate companies, especially bigger ones like DLF, Brigade and Unitech.
Sunday, December 7, 2008
RBI rates cut since October 2008
October
On October 6, 2008 the Reserve Bank of India announced a reduction of the cash reserve ratio (CRR) for scheduled banks by 50 basis points to 8.5 per cent of net demand and time liabilities (NDTL) with effect from the fortnight beginning October 11, 2008. No change in repo and reverse repo rate
October 10, 2008 RBI decided to reduce CRR by 150 basis points to 7.50 per cent of NDTL with effect from the fortnight beginning October 11, 2008 instead of the 50 basis points reduction announced on October 6, 2008 i.e. an additional 100bp reduction in CRR after October 6.
On October 20, 2008 RBI announced a reduction in the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis points from 9.0 to 8.0 per cent.
November
On November 1, 2008 RBI took following measures:
1. Reduce the repo rate under the Liquidity Adjustment Facility (LAF) by 50 basis points to 7.5 per cent with effect from November 3, 2008
2. The cash reserve ratio (CRR) of scheduled banks is reduced by 100 basis points from 6.5 per cent to 5.5 per cent of net demand and time liabilities (NDTL). This will be effected in two stages: by 50 basis points retrospectively with effect from the fortnight beginning October 25, and by a further 50 basis points prospectively with effect from the fortnight beginning November 8, 2008
3. RBI has also lowered the statutory liquidity ratio (SLR) by 100 basis points to 24 per cent
December
On December 6th, RBI further announced rates cut. The short-term lending rate (repo) will fall from 7.5% to 6.5% and borrowing (reverse repo) rate to 5 per cent with effect from December 8. RBI has since October reduced the short-term lending rate by 250 basis points. After several months, the central bank has slashed the reverse repo to 5 per cent. The RBI, however, did not change cash reserve ratio, the amount of deposits which banks are required park with the apex bank.
Current Rates Figure
CRR = 5.5%
Repo Rate = 6.5%
Reverse Repo Rate = 5%
On October 6, 2008 the Reserve Bank of India announced a reduction of the cash reserve ratio (CRR) for scheduled banks by 50 basis points to 8.5 per cent of net demand and time liabilities (NDTL) with effect from the fortnight beginning October 11, 2008. No change in repo and reverse repo rate
October 10, 2008 RBI decided to reduce CRR by 150 basis points to 7.50 per cent of NDTL with effect from the fortnight beginning October 11, 2008 instead of the 50 basis points reduction announced on October 6, 2008 i.e. an additional 100bp reduction in CRR after October 6.
On October 20, 2008 RBI announced a reduction in the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis points from 9.0 to 8.0 per cent.
November
On November 1, 2008 RBI took following measures:
1. Reduce the repo rate under the Liquidity Adjustment Facility (LAF) by 50 basis points to 7.5 per cent with effect from November 3, 2008
2. The cash reserve ratio (CRR) of scheduled banks is reduced by 100 basis points from 6.5 per cent to 5.5 per cent of net demand and time liabilities (NDTL). This will be effected in two stages: by 50 basis points retrospectively with effect from the fortnight beginning October 25, and by a further 50 basis points prospectively with effect from the fortnight beginning November 8, 2008
3. RBI has also lowered the statutory liquidity ratio (SLR) by 100 basis points to 24 per cent
December
On December 6th, RBI further announced rates cut. The short-term lending rate (repo) will fall from 7.5% to 6.5% and borrowing (reverse repo) rate to 5 per cent with effect from December 8. RBI has since October reduced the short-term lending rate by 250 basis points. After several months, the central bank has slashed the reverse repo to 5 per cent. The RBI, however, did not change cash reserve ratio, the amount of deposits which banks are required park with the apex bank.
Current Rates Figure
CRR = 5.5%
Repo Rate = 6.5%
Reverse Repo Rate = 5%
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