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How can the home finance sector boost residential sales amid COVID-19?

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  • How can the home finance sector boost residential sales amid COVID-19?
    2021-05-19, By: System Administrator

    Source : (www.99acres.com)

    As the housing demand and the housing finance sector are grossly intertwined, low interest rates coupled with a series of measures on the part of the housing finance sector can help boost the residential demand amid the Coronavirus crisis.

    Owing to the investment intensive nature of home buying, potential investors have to arrange finances in advance, especially the middle and lower-income groups of the society. Although the Coronavirus pandemic has significantly affected homebuyers’ and created unprecedented challenges for the entire economy, the declining home loan interest rates have presented a unique opportunity for aspiring home buyers to go for the purchase. The pandemic has also provided a chance for the housing finance sector to come up with suitable products for the current challenging times. Major players such as HDFC, State Bank of India (SBI), ICICI and LIC HFL are offering home loans at the lowest interest rates of all time. Moreover, with the intent to encourage the housing finance sector and, in turn, the homebuyers, the Reserve Bank of India (RBI) has also slashed the repo rate twice in the past one year. Low interest rates backed by a series of measures by the housing finance sector can play a vital role in revitalising the housing demand.

    Home loan rates- An overview

    If seen purely from the interest rates perspective, there could be no better time to avail a home loan as the rates are at a multi-decade low. The housing prices across India have also witnessed a correction as the real estate developers are keen on clearing the piled up inventory. This makes the current housing market a buyer’s one.

    Ravi Singhal, Vice Chairman, GCL Securities Ltd, says, “The declining home loan rates are no coincidence. While the Union government is aggressively pushing for the ‘Housing for All’ mission to provide homes to the needy, the RBI is also encouraging the availability of credit by reducing the repo rates. The attractive rates of interest enable the salaried class citizenry to purchase an otherwise unaffordable home. Moreover, the privatisation of banking institutions and their competition with private banks has provided the homebuyers with a multitude of options to choose. They can bargain for low interest rates and can even shift the balance home loan to an institution offering lower interest than the present one. All in all, the competition is leading to homebuyers benefit and giving a boost to the housing demand

    Let us look at the floating home loan interest rates of some of the major financial institutions in India

    Banks

    Interest rates range for floating home loans (in percent per annum)

    Kotak Mahindra Bank

    6.65-8.45 percent

    SBI Home Loan

    6.70-7.50 percent

    HDFC

    6.75-8 percent

    PNB Housing

    7.35 percent onwards

    LIC HFL

    6.90 percent onwards

    ICICI Home Loan

    6.90-8.05 percent

    Bank of Baroda Home Loan

    6.85-8.20 percent

    Source: Bankbazar.com

    In addition to the above-mentioned rates, the banks and Housing Finance Companies (HFCs) offer reduced home loan interest rates to the women home buyers. This discount can range from 0.05 percent to 0.50 percent.

    Highlighting the effect of low home loan interest rates on housing demand, Ramani Sastri, Chairman and MD, Sterling Developers Pvt. Ltd., avers," With the role of the real estate sector in generating employment and economic activity, it goes without saying that the sector’s perennial hope is fixed on lower home loan interest rates. Although a reduction in the prevailing repo rate ensures adequate  capital flow in the market, the home loan interest rates have already gone down substantially over the last year, and are presently at an all-time low. Homebuyers are likely to take advantage of the lower interest rates and the demand for housing is expected to increase with fence-sitters  taking the plunge."

    How can the housing finance sector boost realty growth in the country?

    Despite attractive home loan rates, there are some impediments which, if rectified, can aid significantly in boosting the homebuyers' morale.

    Reduced documentation- Owing to the Marginal Cost of the funds-based Lending Rates (MCLR) regime, banks remain preferred by the homebuyers for home loans. However, they are discouraged by the humongous documentation and verification process, leading to delays and disinterest. Reduction of documentation and promotion of technology will encourage potential homebuyers.

    Longer terms and reduced EMIs- A longer repayment period translates into lower Equated Monthly Installments (EMIs). This step can augment the real estate growth as it will encourage the end-users in buying homes. In addition to this, a no-penalty clause can be included for those buyers who want to prepay the amount earlier when the situation improves. This will further entice potential homebuyers to avail of the loan. The institution must be empathetic towards the loan seekers as the times are challenging.

    Compulsory home insurance- All housing finance institutions must encourage the new or existing home buyers to avail a home insurance facility. In the present context, loss of income is more likely, and ‘home insurance with loss of income’ rider might save homebuyers in case of job loss. Financial institutions must tie up with insurance companies for customised products for COVID times.

    Promotion of flexi home loans- An innovation in the home loan segment, flexi home loans offers flexibility on interest payable. It is immensely beneficial for buyers investing in an under-construction property as the payments are linked to the stage of construction of the property in question. In this product, the EMIs are comparatively lower and can be repaid in small amounts.

    Focus on Tier 2 cities- As most of the working population has moved back to their native places, the housing finance industry must focus on Tier 2 and Tier 3 cities. Prices per housing unit are lower in Tier 2 and Tier3 cities in comparison to the metro cities. Hence the amount of loan would be lesser, and it would help both the housing finance sector and prospective homebuyers.

    The current predicament makes it imperative for the housing finance sector to be more considerate and to customise products for the challenging times. It will not only help the real estate sector to gradually tread the path towards recovery but also help the housing finance sector to expand its portfolio.

     

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