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BL Research Bureau

The new housing package announced by the Indian Banks’ Association comes as a significant incentive for home buyers willing to buy properties in suburban areas and tier-III cities.

The benefit to real estate companies in the listed space may, however, be limited, as they have on-going projects catering primarily to the middle and upper income groups.

Interest rates for new home loans granted up to June 30, 2009, would be capped at 8.5 per cent for loans up to Rs 5 lakh and 9.25 per cent for loans between Rs 5 lakh and Rs 20 lakh. Other incentives such as waiver of process fee and prepayment penalties would also reduce the overall costs for a borrower.

The move, aimed at boosting demand in the realty sector, may however not benefit all listed realty developers, as a number of their on-going projects are above Rs 30 lakh.

These projects need to be completed and sold to keep the developers’ working capital cycle moving. The current measure may not provide a fillip to the demand in this space.

With the new margin requirement at 15 per cent of the cost of house, a person can buy a home that costs a maximum of about Rs 24 lakh to avail himself of a Rs 20 lakh loan (assuming he invests 15 per cent of the house value).

Demand for houses over Rs 30 lakh would increase only if home buyers invest a substantial sum as own equity.

However, a few realty players such as Puravankara Projects and Omaxe have ventured into low-cost housing through separate companies. Unitech too has sought the approval of the Haryana Government for building houses in the Rs 7-15 lakh range in Gurgaon. DLF’s mid-income housing projects too may receive a boost from the measure.

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