Tag Archives: RBI

According to experts in the field, the RBI’s decision to maintain repo rates will not stop the housing expansion

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In Q1 2024, over 1.30 lakh dwellings were sold in the top seven cities, according to ANAROCK Research. This is the highest sales in the previous ten years. 

The Reserve Bank of India (RBI) has decided to maintain the repo rate at 6.5 percent, which will keep the housing demand strong and the monthly interest rates on home loans unchanged for the time being, according to real estate developers and experts.  

The Monetary Policy Committee (MPC) of the Reserve Bank of India decided on April 5 to maintain the repo rate at its current level for the seventh consecutive meeting. 

Experts in real estate say that by making this change, the housing boom will continue on its current trajectory and prospective homeowners can move forward. 

It was anticipated that the RBI would maintain the repo rates at 6.5 percent, according to Anuj Puri, Chairman of ANAROCK Group. “The choice to preserve the status quo will ensure that the current momentum in residential real estate continues unhindered. Prospective homeowners planning a purchase will move forward with assurance. Despite steadily rising prices, the top 7 cities have seen phenomenal housing sales in recent quarters. Home loan borrowers will benefit from the appropriate and much-needed respite that the RBI’s stable repo rate will offer,” Puri stated. 

The top seven cities saw overall home sales in Q1 2024 of over 1.30 lakh units, the highest quarterly sales in the previous ten years, according to ANAROCK Research. Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad, Kolkata, and Pune are among the cities. In the past year, there has been a notable increase in average residential prices in these cities; the difference between Q1 2023 and Q1 2024 is between 10 and 32 percent. 

The RBI’s decision to maintain the repo rates at 6.5 percent, according to Manju Yagnik, senior vice president of NAREDCO Maharashtra, expands the favorable circumstances for homebuyers as those who are thinking about buying can still take advantage of low-interest rates on home loans. 

“The housing market is expanding rapidly, and to control the market and boost consumer confidence overall, stable home loan rates are crucial. In light of growing costs, homeowners will greatly benefit from and receive much-needed relief from the RBI’s decision. Yagnik, vice chairperson of Nahar Group, stated that this decision “lays the foundation for the housing sector’s long-term stability and expansion and boosts the optimistic attitude currently permeating the market.” 

Purchasing a home with greater accessibility 

In agreement, Pradeep Aggarwal, the flounder and chairman of the publicly traded real estate company Signature Global (India) Limited, stated, “ A table repo rate gives the average homebuyer credibility and assurance that they can be assured while taking home loans.” This stability has a direct bearing on the real estate market’s growth, which in turn significantly improves India’s GDP and future growth prospects.”

“Managing price stability in the face of inflationary pressures is highlighted by the RBI’s steadfast position.  Future homeowners will benefit from lower borrowing costs, which will make homeownership more accessible, according to Anshuman Magazine, Chairman and CEO of CBRE’s operations in India, Southeast Asia, the Middle East, and Africa. 

RBI Slightly Cut Rates, Developers Seek More

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RBI decided to cut the key policy rates by 0.25%. Welcoming the rate cut, realtors said that this will boost the sector.

Finally the Reserve Bank of India cut the key policy rates. While welcoming the decision of RBI, realtors said that it would boost the sector. RBI cut the repo rate (the rate at which banks borrow from the RBI) by a mere 0.25%.

RBI slightly cut the key rates.

RBI slightly cut the key rates.

Commenting on the rate cut, realtors said that the interest would have gone down if the reduction rate was further lowered. A further reduction would necessarily boost the home sales. Home loans will be lowered. This will boost the sentiments of the buyers.

Along with the buyers, the builders also will benefit from further rate cuts. If the repo rates are further revised, it will bring the EMIs down.

Speaking on the issue, former CREDAI chief Lalit Kumar Jain said that the common house buyers will benefit from the reduction of repo rate.

The Central Bank of India today cut the repo rate, short-term lending rate, by a mere 0.25%.  After the reduction now the repo rate stands at 7.25.

Developers seek more rate cuts from RBI.

Developers seek more rate cuts from RBI.

The RBI decision was met with mixed response. DLF, one the largest developers in India, said that the rate cut will hardly have any impact on the realty sector. The realty major said that the reduction is too small to leave an impact on the sector.

Rajeev Talwar, Executive Director of DLF Group, demanded further reduction. He opined that only a further reduction will boost both economy as well as realty. Mr. Talwar stated that the rate cut is very so small that it is insufficient to boost either economy or realty.

Sachin Sandhir of RICS (Royal Institution of Chartered Surveyors) also expressed a similar view. He too said only further rate cuts can boost realty sector.

Assotech MD Sanjeev Srivastva said that the move will boost the sector. He hopes that the rate cut by RBI will be passed on to the customers by the financial institutions.

ECB Norms Likely To Be Relaxed to Boost Affordable Housing

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The officials of the finance ministry and of RBI will hold a meeting this week to discuss about relaxing the norms for external commercial borrowing (ECB). The relaxation may boost the affordable housing projects.

To discuss about how to imply relaxation on the norms related to external commercial borrowing (ECB), officials from both Finance ministry and the Reserve Bank of India, may meet this week. Continue reading →

Residential Market Revives After RBI Rate Cut

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Real estate experts said that the residential market across India has revived after RBI cut its major rates. After the RBI rate cut; the home loans have become cheaper and this has improved the sentiments of home buyers.

Residential market started reviving after RBI cut rate.

Residential market started reviving after RBI cut rate.

RBI rate- cut have highly affected the sentiments of home buyers. With the RBI rate cut, the home loans have become cheaper. This has increased the housing demand that helped residential market to revive.

Praising the RBI rate cut, real estate developers and consultants have said that the act will improve the housing demand. As a result the residential market will see a growth. According to them, the rate cut will boost foreign investment as well.

Last week; in a much awaited decision enabling the subsidiary banks to offer loans at lower interest rates, RBI had cut short its key interest rates. The Central Bank lowered the repo rate by 0.25% and cash reserve ratio by 4%. Continue reading →

Home Loans’ Interest To Fall As RBI Cuts Rates Finally

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Finally, Reserve Bank of India (RBI) declared a cut in its main interest rate on Tuesday. As a result the banks will be pushed to provide home loans at lower interest rates.

Home loans will become cheaper

Home loans will become cheaper as RBI cuts rates.

Home buyers finally heard the much-awaited good news when the Reserve Bank of India cut its main interest rate (Repo Rate) and cash reserve ratio (CRR). As the central bank cut the rates the impact will be on the subsidiary banks. They will be able to provide home loans at lower interest rates.

Home loans will become cheaper. The banks will remain capable of providing easier EMI loans (Equated Monthly Installments) to the home buyers. D Subbarao, Honorable Governor of RBI, said that the act of  RBI will boost the investments. He added that the RBI rate – cut will keep inflation in a moderate level. Further, the rate cut will improve liquidity and credit flow. Continue reading →

RBI Can Let Realty Firms Run Banks; Finance Ministry

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Favoring the real estate sector, Finance Ministry expressed its view that the realty firms should be permitted to run banks by the Reserve Bank of India (RBI).

Will RBI permit realty builders to run banks as Finance Ministry suggests?

Will RBI permit realty builders to run banks as Finance Ministry suggests?

Finance Ministry, favoring the realty sector and broking firms said that they should be permitted to run banks. The ministry said that the RBI should permit the real estate firms and broking firms to run banks. Finance Ministry was commenting on the RBI’s plan over giving new bank licenses.

Though Finance Ministry supported and favored the real estate sector and broking firms, it added that there should be absolute ban on gaining exposure in the group companies or entities related to any of the promoters. Continue reading →

Real Estate Builders Express Discontent over RBI Policy

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Real estate builders expressed their discontent over the RBI’s decision to keep key policy rate unchanged. RBI seems not worried and unaffected as the central bank said expressed this as the right time to do so.

rbi decides to keep key policy rate

rbi decides to keep key policy rate

The Central bank of India said that it was the right time to lower the borrowing cost for real estate developers as well as home buyers.

Real estate apex body CREDAI has strongly expressed their disappointment over the RBI decision. CREDAI President Lalit Kumar Jain condemned the decision as entirely negative approach towards real estate. Continue reading →

Residential Market Demands will Remain Stagnant

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A recent report by Global Property Consultants CBRE South Asia, India Residential Market View – 2011 states that while the residential markets across NCR and Mumbai witnessed steady escalation in prices during the revival period from 2009 to first half of 2011 (as high as 40-50% in certain micro-markets), the latter half of the year brought in stagnation in overall prices.

Numerous repo-rate revisions by RBI, which led to upward revision of mortgage rates, tighter control on teaser rates earlier being offered by financial institutions to reduce EMI burden in the initial years of loan tenure, and inflationary pressures impacted end user as well as investor sentiment by the end of 2011. This coupled with supply pile-up lead to downward pressures on capital values across various micro-markets in these leading hubs. While the year 2012 started on a positive note with the central bank reducing repo rates by 50 basis points for the first time in several months (after increasing it 13 times in the last 2 years), the impact on demand rejuvenation might be limited.

“During 2011, we witnessed initial buoyancy in the real estate market as investor and developer sentiment improved, riding on the high residential demand wave. However with repeated interest rate hikes, rising prices and prevailing economic conditions, the market saw a dip in sales towards the middle of the year,” said Anshuman Magazine, Chairman & Managing Director, CBRE South Asia Pvt Ltd. This led to a supply pile-up in the key markets of NCR (National Capital Region), Mumbai and Bangalore, leading to capital values remaining flat across various micro-markets in these three leading hubs.

“While the recent rate cut by the RBI has helped generate positive sentiments in the market, stagnancy in demand will continue in the short to medium term unless there is an overall improvement in the economic scenario,” Mr Magazine added The NCR market witnessed considerable appreciation in capital values in the first half of the year, with premium markets witnessing steady demand from expatriates, high net worth individuals (HNIs) and executives from multinationals and Indian companies.

Mumbai Realty Market Looks For Some Upward Growth

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The real estate market in Mumbai looks poised for some upswing after going through a lukewarm phase for the past few months. Evidently, there has been a marked increase in sales in March 2012 when 5,776 properties were registered, which is 37% more than the 3,639 registrations in the month of February 2012.

Similarly, at least 50 projects have been launched in the last three months, which further underlines the positive sentiment in the real estate market. The developers ‘ fraternity is quite upbeat about this encouraging development in the past few months.

Says Bharat Mody, CFO, Hubtown Limited, “The recent registration data is certainly encouraging and we are hopeful of numbers getting better from here on.” Similarly, Diipesh Bhagtani, Executive Director, Jaycee Homes Ltd, says: “It’s always good news when we see higher number of registrations and project launches.” Developers, however, have their own reasoning for this positive trend witnessed in the real estate market. The festive spell in the month of March has also been instrumental in giving a boost to the sales in the residential space, observe developers.

Shailesh Sanghvi – Director of Sanghvi Group of Companies, says: “Auspicious occasions such as Gudi Padwa, Akshya Tritya and Dhanteras give an impetus to booking of flats. As Gudi Padwa fell in the month of March, this worked as a major driver for property registrations.

With several developers attracting homebuyers with significant discounts and incentives the trend will continue to prevail since it is the most favourable day to purchase the flat or to perform their Graha Pravesh puja.

On this festive occasion there is an affirmative sentiment in people and more prospects are keen to buy, a discount offer helps them to take the decision faster, releasing some monetary burden.” In addition to this, bonus and healthy job market have certainly created an optimistic sentiment in the market, he points out. However, according to Mody, this improvement has mostly come from the re-sale property rather than any fresh purchases. “Therefore, things will significantly change only if situation on pending approvals improves drastically. That will create fresh supply in the market and ease the upward pressure on prices and will prove to be win-win for government, home-buyers and developers,” he says.

Additionally, developers aver that the primary reason is that the new Development Control Rules (DCR) that came into effect in January has been instrumental in boosting the sales. The recent bunching up of project launches after the new DCR came into effect in January 2012 seems to have driven the recovery, observe realty experts. “Developers and customers are now certain of what they are buying and investing into. Also, we have made it mandatory for developers to sell flats on carpet pricing, leaving no dispute on clarity of areas.”

Moreover, with the Reserve Bank of India (RBI) cutting interest rates for the first time in three years after raising borrowing costs by record 375 basis points in 13 moves from mid-March 2010, this factor has also been responsible for the spike in purchases. The RBI lowered the repurchase rate to 8 per cent from 8.5 per cent on April 17. Incidentally, Mumbai’s residential home sales recovered from a three-year low in the quarter ended in March.

 

Economy and Realty for the Month of April 2012

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Healthy office space absorption in 2011-2012 inspite of slowdown in GDP, However 2012-13 seems bleak.

Currently, the top seven cities of India that is Mumbai, National Capital Region, Bangalore, Pune, Chennai, Hyderabad and Kolkata together occupy 389 mn sq.ft of Grade-A office space. During 2010-11, a total of 38 mn sq.ft of new space was constructed in the top seven cities and it was 37 mn sq. ft during 2011-12. Office space absorption in India during 2011-12 was merely 2% lower than 2010-11 despite GDP growth slowing down from 8.4% to 6.9% during the same period. This is in sharp contrast to the popular belief that 2011-12 was a dull year for office market in terms of absorption. Healthy absorption rate ensured a drop in vacancy level to 21% by the end of Q4 2011-12 from 27% in Q4 2009-10.

Share of Banking & IT sector falls in absorption while manufacturing sector has witnessed an increasing trend over the last two years and contributed 19% in total absorption during 2011-12, higher from 13% in 2010-11. GDP growth of service segment is estimated to grow at 8.8% during 2012-13, much higher than industry segment growth of 6%. Absorption of space during 2012-13 is expected to be considerably lower than the previous two years and this will make it all the more challenging for developers to maintain existing levels of rent.

However, the latest move by Reserve Bank of India (RBI) of reducing the repo and reverse repo rate by 50 basis points (bps) each could provide the much needed impetus to the economy and help in reviewing the demand scenario for office space in the coming quarters.

2012 is a Tougher Year for Fund Raising

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Due to global issues, liquidity is becoming a problem. Though the phase is temporarily, the concern cannot be ruled out. Indian real estate sector is banking on the fact that change will take place and market will come out of the situation. The fact of the matter is that next 12 months and in fact 2012, does not look too bright for the sector.

The global debt worries have led to more and more uncertainty. In the last few months, the sector has been plagued by a potential liquidity squeeze. The situation is very unsettling and the fear is that we might end up looking at the year 2008 situation. It is certain that banks will get into selective lending with more strict verifications. In 2012, we are expecting that interest rates might get stabilized but disbursal of home loans will come down.

As RBI has been steadily increasing interest rates, debt for developers is becoming expensive. Also many banks are right now not keen to lend to real estate projects. Due to global uncertainty even private equity is cautious of investing in India. In fact, companies have started looking at alternative routes of fund raising. And many a deals are being done as structured debt deals hiding behind the facade of an equity structure.

In structured debt deals, the companies—investor and investee—sign two agreements. In the publicly announced agreement the investor—a PE or a VC fund—buys an equity stake in the company; and in the second contract they have buyback clause, which allows investee company to buy back its shares from the PE/VC fund at a price that will give the fund a return of about 20% per annum over the duration of the investment.

All signs currently suggest that 2012 would not be an easy year. As debt becomes more expensive and PE funds find it difficult to deploy cash due to global economic conditions, we would see higher number of structured deals taking place in 2012. Though these structured deals are being done, they have their share of problems. The problem is when the side-contracts are not honoured.

Realty Industry Feels Rate Cut as Benefit for All

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The interest rate sensitive realty industry Tuesday welcomed the Reserve Bank of India’s (RBI) decision to cut key lending rates by 50 basis points, and felt the move will boost builders’ and home loan customers’ sentiments alike.

“For the real estate in particular, this is indeed a welcome step by RBI. While the sector was already reeling under the pressures of high interest rates, this will allow banks to lower down the interest rates significantly. Both buyers and developers shall get benefitted from this,” said Pradeep Jain, chairman, Confederation of Real Estate Developers’ Association of India (CREDAI).

Home loan buyers are currently paying a higher rate of interest in the range of 11.50-13 percent on floating basis. Customers, who had earlier opted for dual rate scheme and now just exhausted their fixed tenure rate, are paying the same rate of interest.

Other industry players like Unitech and real estate consultancy firm Cushman & Wakefield also welcomed the move, which they said would boost business confidence.

“This development will have a positive impact across the economy and particularly in the real-estate industry. Not only will the cost of borrowing rationalize, this reduction will also provide an impetus to growth and enhance business-confidence,” said Ajay Chandra, managing director, Unitech.

Cushman & Wakefield India said that the banks are expected to pass on the reduction in interest rates to consumers, which will provide a positive boost to market sentiments especially in the residential sales markets.

“We expect to witness some pickup in the volume of sales transactions. For the whole of last year, end buyers had to defer their purchase decisions as they were facing the double-edged sword of rising interest rates and stubborn price levels,” said Anurag Mathur, managing director, Cushman & Wakefield.

The RBI’s announcement also buoyed the BSE Realty index which grew by 32.50 points at 1,813.97 points around 2:50 p.m. Stocks of realty industry players also surged with DLF’s scrip growing by 3.75 points or 1.88 percent at 203.25 points.

Realtors expect rise in property demand post RBI’s rate cut

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Realty firms on Tuesday hailed the RBI’s decision to cut short-term lending rate saying the move would reduce the cost of funds to home buyers as well as developers and boost property demand.

“Reserve Bank’s decision to cut the repo rate by 50 basis points and abolish pre-payment penalties is a good move for home buyers,” Confederation of Real Estate Developers Association of India (CREDAI) Chairman Pradeep Jain said. In its annual credit policy, RBI has asked banks not to levy foreclosure charges or pre-payment penalties on home loans extended on a floating interest rate.

The country’s largest realty firm DLF also welcomed the decision, saying it would significantly improve the cash flows of developers. “It is positive news although very-very delayed. This will benefit home buyers besides the industry. It will improve cash flows tremendously,” DLF Group Executive Director Rajeev Talwar said.

Jain too said that liquidity for developers would improve and cost of funds would be cheaper. On demand, Credai Chairman said the move would definitely boost housing demand. However, property consultant DTZ India CEO Anshul Jain felt more measures need to be taken to have a positive impact on housing demand.

“It is a step in right direction although lot more measures need to be taken before we see any effect of the rate cut on the real estate sector,” said Jain of DTZ. The housing demand, which is very subdued currently, would only rise if the interest rates on home loans come down to below 10 percent, he added.

JLL: Residential Realty Market is set to appreciate in 6 months.

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Jones Lang LaSalle India, a global research firm in the real estate sector, says that prices of residential units in India in the next six months should witness marginal appreciation. JLL says: “Over 60% of residential launches in the Top 7 cities (mostly in cities other than the NCR and Mumbai) are priced in the range of Rs 2,000-4, 000 per sq. ft., which meets the demand of middle-income buyers.”

At the same time, the RBI has given sufficient indications of probable cuts in key rates during second half of 2012, which will improve affordability for homebuyers and provide lower interest costs for developers. This will help in increasing the demand for residential units in the country. JLL also argues that even in the present bad condition, prevailing absorption rates are at nearly 10-12 %, which translate into an average absorption period of 8-10 quarters for a residential project. “This implies that at average prices, any average residential project should be sold out before construction is completed in around three years from the launch.”

JLL says that new project launches, which were slow in Mumbai and the NCR in the first half of 2011 due to approval and land acquisition issues, have now started to pick up. This should improve cash flows for developers having large land banks during 2012. A number of builders have acquired huge land banks on borrowed fund. As the builders pay huge interest rates, nearly 15-18 % on the borrowed fund, the servicing of debts has put huge strain on their finances. Any improvement in off-take is likely to release them from the financing pressure.

In the present slowdown condition, despite bad financial conditions, builders are not cutting the prices as in most parts of the country; they have priced their projects at nearly cost prices. “With rising input costs, developers do not want to sell below a threshold, which does not justify their minimum replacement returns,” JLL says. “This leaves home buyers with a small window of opportunity – the next six months – when home prices should witness marginal appreciation. After six months, a second wave of high appreciation is predicted.

However, in some of the micro markets in Mumbai and the NCR, the appreciation in prices was even sharper. In the last two years, in some of the markets like Gurgaon’s Dwarka Expressway, prices have almost doubled.

Overall, the Indian real estate market went through a slowdown in the last one year. But, all the predictions of a hard landing for the residential property market in 2011 and 2012 have failed to come true, so far.

Mumbai offers little hope for home buyers.

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In a recent report, Jones Lang LaSalle said that Mumbai seems to be in a tighter spot with Rs275 billion being sunk in land since FDI (foreign direct investment) was allowed in real estate in 2005; most of which has failed to yield returns. Even many investments done in South Bombay once named as one of the hottest and costliest property location in the world have met the same fate. Read Mumbai has sunk Rs275 billion in lands since 2005, the reason is known to all. Sky high prices have put off customers. In Mumbai, an average flat costs more than Rs10,000 per sq. ft. and even in Navi Mumbai, in less populated areas, there are many projects that have flats priced at over Rs1 crore.

Add to that the confusion created by the new DCR (development control rules). Many builders now have to make fresh plans to accommodate the proposed changes about FSI; and the worst affected are those whose projects are already underway. Many of the launches have been put on hold, and construction has been stalled in many places. And for people who have already invested in these projects, the longer the deadlock lasts, the more they have to pay.

Buy or not to buy? Despite a profusion of analyses and research reports on housing prices and their future direction, home buyers remain as confused as ever. So it is little wonder that 37 lakh of flats remain vacant in Maharashtra, of which 4.79 lakh are in Mumbai. The Census Directorate data says that even Thane district has more than 5 lakh vacant flats.

“Why doesn’t the government or RBI (Reserve Bank of India) understand that the more they squeeze liquidity by raising interest rates, it raises returns on black investments even higher. If our country can bring down black element out of property, rents will fall, property prices will fall,” said a commentator.

The home-buyer, however, is at a loss. The Budget came as a flop, and a recent Crisil report says that prices of steel and cement will go up, which will probably be passed down to the end-user. And then, there is the proposal to hike on leave-license, which is going to make rentals expensive. There are some who expect matters to improve.

Pankaj Kapoor, MD, Liases Foras also had echoed similar thoughts. “The high prices are not fault of only the builders. The hike in stamp duty was uncalled for and it is too revenue-centric and indicates a short term vision.” Read Maharashtra Stamp duty hike: “Neither can you afford to own a home, nor take it on rent”

However, as most experts say, one can buy a home any time. “You never know what will happen next. And honestly, there is little evidence to suggest that customers have waited for better home loan or price options when they have to buy a home—because it is a necessity. So if you want to own a home, there is no bad time,” said an analyst.

Gudi Padwa and its Impact on Indian Realty Sector.

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Gudi Padwa, a festival which earmarks new beginnings and new hopes to everybody’s life. Hence many builders announce their new projects at this point of time taking into consideration the sentiments of the local market. The festival is widely celebrated in the state of Maharashtra. As for common people in India, a home is a priced possession and they do not sell and buy residential properties often. They wait for an auspicious date to such transactions.

Keeping this in mind, realtors at Pune has organized Sakal Pune Property Show named as Sakal Gudi Padwa Grihotsav 2012. Across the just concluded quarter, residential prices in the outskirts of Mumbai have seen a positive slide. With the Union Budget 2012 giving due consideration to the loans of affordable housing projects coupled with the positive feeling related to the festival, buyers and sellers expect to strike a great deal during this year’s Gudi Padwa.

The buyers mainly constitute the New Urban Family Sector. Moreover, during this festive season, realtors juxtapose the properties with attractive discounts and freebies. But with these factors only, nobody can lure customers today. They are more oriented towards the location of the property, the pricing and the quality of construction.

The recent years were not so good for real estate sector. The ever rising inflation rates and interest rates kept the buyers at the bay. But the recent decision of the RBI to cut CRR rates gives little bit of hope to the sector.

However real estate experts suggest that the sentiments related to a festival only cannot trigger the sector. But it is decisive in getting the real estate market on the right track after a gloom. Moreover, traditionally Gudi Padwa means birth of bhoomi and bhoomi is everybody’s shelter. We can hope and look forward for bright days for real estate sector ahead with this auspicious festival.

Real Estate Sops can’t impress Firms.

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The finance minister relaxed borrowing norms for real estate firms and extended the loan subsidy for low-cost affordable houses. The concessions have, however, failed to impress the industry leaders who termed it as a too-little-too late move that would have a limited impact on the sector.

“I propose to allow ECB (external commercial borrowing) for low-cost affordable housing projects,“ the Budget said.

The move has a dual aim of expanding the window of funds for real estate developers such that affordable housing projects do not face cash crunch and are completed within the time frame.

Global consultancy Deloitte said RBI had earlier allowed ECB for developers in integrated township projects of 100 acres or more till December 31, 2010.

The FM also extended, by a year, the 1% interest subsidy on loans up to R15 lakh where the cost of house does not exceed R25 lakh.

NRIs want to buy home in India

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NRIs are investing into residential real estate specifically in large Indian cities to build a back-up base in the country as many of them intend to set up businesses in these cities in the future. I think there is  not a single non-resident Indian (NRI) who is not keen to buy real estate in India. Having a own home in this country is one of the means available to them to stay connected to their motherland. As they make their fortunes abroad, such investments in their country help them to maintain their relationships back home.

What I found most interesting was that they had not even considered eventually relocating to India when they bought property here as they have simply done it for investment.

NRIs are investing into residential real estate specifically in large Indian cities to build a back-up base in the country. This particularly applies to NRIs with professional/entrepreneurial ambitions who intend to set up businesses in these cities in the future.

As during 2008-2009 global financial crises (GFC), India has presented itself as an example of financial stability. This GFC has caused NRIs to seriously think about buying homes in India.

As per the limits regarding how many commercial or residential properties they can own in India, there is no restriction to the NRIs. But when a NRI wants to sell and take the money back, he can do so with the sale proceeds of only two units. NRIs can invest into real estate by transferring funds to India through normal banking channels, or by invest through funds in a Non-resident external (NRE)/ Foreign currency non resident (FCNR)/ Non- resident ordinary rupee (NRO) accounts maintained in India. But payment via travellers’ cheque or foreign currency notes is not permitted.

Home loan can be availed from Indian institution approved by the National Housing Bank (NHB), and loan repayment can be done either through inward remittances, debit to a NRE/FCNR/NRO account, through the rental income which is earned in India. NRIs can also apply for home loans from the employer in India, provided specific terms and conditions listed by RBI are met.

NRIs are allowed to mortgage their residential property in India with an Indian financial institution without any approval from RBI. They can also mortgage it with a foreign financial institution with prior approval from RBI.Also they can rent out their residential property without the approval of the RBI in India and the rent received can be credited to NRO/NRE account.

The RBI’s Realty Indices For Ahmedabad

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Ahmedabad happens to be one of the 11 countries for which the reserve bank of India would prepare one index for commercial and one for residential properties. This is done to curtail speculations and expected realty bubble burst in the coming years. The RBI report on asset price monitoring system (ASMS) advised to formulate these indices two months back.

Reserve Bank of India, Kolkata
Photo by seaview99

Many different countries such as Canada, France, us refer to these indices for realty prices.

The report says, RBI should start compiling a realty index and update it every quarter. To begin with, the report has proposed Mumbai and Delhi where property prices have skyrocketed to record levels. After these cities RBI would add 10 other cities which include Greater Chandigarh, Hyderabad, Chennai, Bhubaneswar, Pune, Jaipur, Kolkata, Lucknow, Bangalore and Bhopal.

The real estate price index once devised would become the primary index that could be perused by investors to gauge the performance of companies that are listed in the realty sector. The index can also help the investor analyze how real estate is performed in comparison to stocks and bonds. It can also provide information on the risk involved in a particular investment and returns that can be achieved from it.

The ASMS report has defined the deficiencies this indices would help overcome.

RBI Might Compel Banks to Increase Loan Rates

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April 15, 2010

The builders might now suffer with costlier scrounging since Reserve Bank of India (RBI) plans to ask banks to set apart more funds for loans to commercial realty projects. This in turn will force banks to aggrandize the interest rates on such loans.

According to senior bankers RBI can take either of the two options. First, increase normal provisioning or second, risk weight on bank loans to realty firms in the forthcoming policy on 20th of April. This will be intended at shielding banks’ contact with properties in the midst of mounting prices.

According to the Chairman and Managing Director of Indian Overseas Bank, SA Bhat, the outcome of RBI not raising the cash reserve ratio (CRR) and keep signaling rates like reverse-repo rate and repo rate untouched will be that the prudential norms will get tighten. “An increase in risk weight, especially on realty loans, is not ruled out”, he added.

As per the latest available figures, in November 2009, banks exposure to commercial realty was Rs. 88,581 crores.

The capital which is set apart to estimate capital sufficiency ratio is the risk weight which is now 9 percent for all banks. Less capital is to be kept for borrowers with increased credit rating. The risk weight is 20 percent for triple A clients, which indicates that a reserve of Rs. 1.80 of its own capital for every Rs. 100 loan is to be needed within banks for such borrowers.

SBI May Give Reason to Cheer

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Bank to every Indian
Photo by RamNMarch 25, 2010

After the budget 2010, SBI brings a gleam of hope for home loan borrowers as it plans an extension in the home loan relief plan.

SBI, the State Bank of India, one of the largest lenders in India, has indicated that although there would be slight changes, but it may still consider continuing its much-talked-about 8 % home loan scheme. One of the top officials of SBI said that even though they bring modifications in their products, which tune with their liquidity position normally they don’t kill any product. However, the banking major have not yet formally announced the extension of the bid whose tenure gets over on March 31.

The corporations like ICICI Bank and mortgage lender Housing Development Finance Corporation which are the major competitors of SBI also copied this scheme of SBI but later withdrew them because the RBI disapproved such products and drying liquidity.

But according to the officials it is one of the best home-loan plans in the market since it assisted other sectors to grow like cement and steel. It is a very successful offer. It also tremendously contributed to the overall economic growth.

However, the ‘teaser’ schemes were not liked by the Reserve Bank since it was related with the ability of customers to pay the rates of interest when it got back to the usual level after the period of this scheme expires.

RBI Deputy Governors, Usha Thorat and K C Chakrabarty, had openly expressed their concerns about the scheme. “Teaser rates…

Loans set to get costlier

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The Reserve Bank of India may step up its efforts to pre-empt another bubble in the local property market by increasing the cost of funds for the commercial real estate sector by up to 200 basis points.
According to an RBI official, “We are looking at a hike in the risk weight to the commercial real estate segment to 125% as a measure to ward off another bubble in the real estate segment and to ensure high credit quality”.
These days interest rates on most of the loans are between 7.5% and 12.5%, depending on the credit rating of the borrowing company. The current move will make loans to this segment costlier by 75-200 basis points.
Bank finance for land development is classified as CRE if the source of repayment would be lease rentals. The segment has started showing signs of revival after an earlier-than-expected recovery of the country’s economy from a demand slump.
The measure could affect the financial health of some of the largest real estate firms of the country, which were forced to sell land banks and projects to meet their cash requirements. A similar move by the RBI in 2007 had resulted in a crash in property prices. Though the central bank was criticised for the measure, the global financial crisis in 2008 proved that it was a step in the right direction.
Till mid-November last year, the risk weight to loans secured by commercial real estate was 150%, which was brought down to 100% by the banking regulator to facilitate credit flow to the sector that was reeling under a demand slump.
High exposure of some banks in the segment may have prompted RBI to consider such a measure, said the chairman of a government-run bank. “A major chunk of the non-food credit off-take in the recent months went to the real estate segment,” he said, requesting anonymity. However, an increase in risk weight by 25% points will have only limited impact, he added.

Sub-PLR rates set to go

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People who borrow money from banks to buy homes at floating rates of interest are set to benefit as banks are expected to change the way they price such loans.
The Reserve Bank of India is preparing to ban lending below the prime lending rate, the benchmark rate for all floating rate bank loans.
Sub-PLR lending came into existence a decade ago after banks obtained permission from the central bank to lend below the benchmark rate.

Realtors must tell buyers about bank claim

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Home buyers will now know if the land on which their building stands is free of outside claims after a recent RBI circular mandating builders mortgaging the land to raise money to disclose it in all advertisements and brochures. RBI has asked lenders to ensure that all publicity material relating to the sale of real estate make a mention of the bank’s lien on the property so that home buyers are not kept in the dark. RBI aims to prevent prospective buyers from being lulled into the belief that the flats they own are on ‘free-hold’ land through this move. In Mumbai flatowner gets rights over his house through membership of a cooperative housing society. The land is not owned by the society unless it is transferred through a conveyance.

RBI Revised Guidelines

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The Reserve Bank of India has issued revised guidelines on banks’ exposure to commercial real estate. The strategies say about the property where repayment of loans solely depends on the property itself and not on its expected profits.
Where repayment mainly depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc, the exposure would not be counted as Commercial Real Estate.
Banks may extend funds to public agencies for acquirement and development of land, provided it is a part of the complete project. Where land is obtained and developed by state housing boards and other public agencies, banks may extend credit to private builders on commercial terms by the way of loans linked to each specific project. Banks have no right to extend facilities to private builders for purchase of land even as part of a housing project.
Bank finance can also be approved to individuals for purchase of plot, in such case a declaration is needed from the borrower that he intends to construct a house on the said plot.