Dwindling bank home loan rates makes homes cheaper to buy

Buying a house requires a lot of research and planning and for the middle or lower income group they might have to spend a fortune for purchasing the biggest asset of their lives. However, things are likely to change after the Pradhan Mantri Awas Yojana.

The government’s vision to provide “housing for all by 2022” is all set to bring about some major structural changes in the property in India. The reduction in the home loan interest rates will give a boost to the affordable housing projects in the country. While the big brands will shift their focus towards this segment of real estate and will come up with new budget projects, a large number of developers will announce a noteworthy price correction in their existing projects. This push will be beneficial in two ways – it will help in stock clearance of the assets piled up and also will lead to price correction.

In order to promote the sale of affordable houses, many leading banks of the country have announced a reduction in their home loan interest rates, making the homes cheaper for purchase. After SBI, the two leading private banks, ICICI and HDFC have also lowered their interest rates by up to 0.3% for a loan amount up to Rs 30 lakhs. SBI is the biggest player in the home loan segment holding market share of around 26% followed by HDFC.

 For women, loans till Rs 30 lakhs shall have an interest rate of 8.35% and for others it shall be 8.40 % respectively. The interest rates remain the same at 8.50% for a loan amount of Rs 30 lakhs to Rs 75 lakhs and an amount exceeding Rs 75 lakhs shall have an ROI of 8.55% as compared to the previous 8.75%. This reduction is mainly beneficial for the salaried customers as they can avail home loans at the lowest rate in the country.

This reduction in the bank loan interest rates is anticipated to make the home loans cheaper, thus encouraging the affordable homes category in the real estate sector. Banks like ICICI also give the option to its customers opting for home loans under this category to choose the type of interest rate. Customers can avail the benefit of fixed rate or floating rate for initial years followed by floating rate. They also have the option to link their home loans with MCLR-6 Months or I-MCLR-1 Year.

All these measures will help the Low Income Group and Economically Weaker Section (EWS) of the society help purchase an affordable house.  Further adding to it, an additional subsidy was announced on home loan interest rate which was like an icing on the cake. Under this new scheme, an interest rate rebate of 4% and 3% was announced for home loans of up to Rs 9 lakhs and `Rs 12 lakhs, respectively. In rural areas, loans of up to Rs 2 lakhs for property expansions or for new home shall be given an interest subvention of 3%. Mr. Modi also declared that under this new scheme, 33% more homes shall be built for the poor class in rural area. With a subvention of 4%, the EMI’s shall come down by almost 20% resulting in an improvement in the affordability factor.  A cut in the interest rates and reduction in monthly installments will also let people opt for higher loan amounts. This scenario would allure many more builders and developers to announce projects in this segment.

Potential homebuyers will now be able to take decisions on buying property especially in Tier 2 cities where interest rates on affordable properties have gone down and one can avail subsidies also.

The slashing of the home loan interest rates is expected to have a positive effect as more and more people from the lower strata of social pyramid will be able to afford homes at subsidized rates. Also, the push for the affordable homes is expected to wipe away the depression engulfing the Indian realty industry post demonetization.

Owing to all these drastic initiatives taken by the Indian government to boost affordable housing, the pure-play affordable housing finance companies shall also be benefitted. It is expected that over a period of next 4 years these companies shall grow at a CAGR of 40%. As per a latest report, there has been a growth of approximately 50% in their assets under-management from Rs 15,000 crores in March 2016 to Rs. 23,000 crores as of March 2017.