07012017-rel-01.qxd 1/6/2017 5:29 PM Page 1 c m y b CHANDIGARH | SATURDAY | 7 JANUARY 2017 Hopes of a sunny 2017rise high as loan rates fall GEETU VAID After a grim end to 2016 the realty sector in the country entered the New Year on a sunny note. This newfound hope and cheer is courtesy Prime Minister Narendra Modi’s “postdemonetisation damage control” address on the New Year Eve. On December 31 the PM announced the decision to provide interest subvention of 3 and 4 per cent for loans of up to ~12 lakh and ~9 lakh, respectively under Prime Minister Awas Yojana (PMAY). This will be in addition to the 6.5 per cent interest subvention on home loans up to ~6 lakh that is already available in PMAY. The move is set to give a boost to the residential segment, especially the affordablehousing as it is the segment having the maximum shortage — 95 per cent of urban housing shortage is in the affordable housing segment which comprises Lower Income Group (LIG) and Economically Weaker Section (EWS). Apart from the loan rate subsidy the PM announced another new scheme for neo middle class in rural areas which provides an interest subvention of 3 per cent on loans up to ~2 lakh taken in 2017, for construction of new houses, or extension of old houses. A 33 per cent increase in the number of houses being built for the poor under the Pradhan S. C DHALL The current as well as the prospective cuts in home loan interest rates will undoubtedly benefit new home-loan borrowers. But what about the existing borrowers? Will they also benefit from the falling home loan rates? For the existing borrowers, the rate cut would take time to reflect. This means that they may have to wait until the next reset period if they are on marginal cost of funding lending rate (MCLR). The reason for this is: if you have taken an MCLR-linked loan, the interest rate that you pay is subject to changes at fixed intervals as per the tenure for which the rates are linked. For instance, SBI Mantri Awaas Yojana (PMAY) in rural areas was also announced. These steps are being termed as positive ones by the industry mavens. “These announcements are a positive step to accomplish the vision of ‘Housing for All by 2022’. Government announcement of interest subvention on home loans up to ~12 lakh will be of great relief to LIG and neo middle class”, said Parveen Jain, President, NAREDCO. According to experts with the subvention scheme in place the EMIs of loans up to ~12 lakh are expected to go down by almost 50 per cent resulting in substantial savings for the borrowers. However, the full extent of the benefits of the move will be clear once the government clarifies finer details regarding restrictions on income, size of the housing units and other eligibility criteria. “The government’s two new schemes under PMAY will benefit people with lesser income, which is the largest base of the social pyramid of our country. Widening the scope of the existing Credit Linked Subsidy Scheme (CLSS) from ~6 lakh to ~9-12 lakh, will have an extensive impact some incentives in taxation, would be of great help in meeting the housing shortage in urban areas. Home loan rates slashed While the PM’s announcements prepared the pitch for a revival of the realty sector, the banks added icing to the cake by announcing cut in home loan rates earlier this week. State Bank of India (SBI), reduced its marginal cost of funds based lending rates (MCLR). For SBI, the new rates are 8 per cent against THINKSTOCK on meeting the housing needs of the EWS and LIG groups. This move will increase the probability of individuals to avail housing loans thereby giving a boost to the affordable housing sector”, said Sandeep Singh Gaur, CEO, Sheltrex Sheltrex Developers P Ltd. Private developers’ lobby is all excited about the prospects in affordable segment now and will be focusing on this segment especially in 2017. As Kushagr Ansal, Director of Ansal Housing points out, “Since the affordable housing and housing for all missions Shrinking EMIs, There is little doubt that 2017 is going to be the year of affordable housing and a good time to buy if you are looking for a house in the ~25 to ~45 lakh segment. Data by realty portal magicbricks.com shows a 4 per cent price correction at a pan-India level, post demonetisation. This fall in prices, taken together with an EMI saving of 6 per cent, has led to a ready-made bouquet of anything between 8-12 per cent effective discounts for home buyers Who will benefit from the rate cut? will have their EMIs linked to the base rate. Therefore, these borrowers will have to either enter into a fresh contract with their bank to get their loans linked to MCLR, or they will have to wait till their lender reduces the lending rate for them too. If that doesn’t happen, which is usually the case, then they should try to get their loan shifted to another lender by paying the required fee. What is marginal cost of funds-based lending rate (MCLR) As the banks were not quick in passing on the benefits of the rate cuts announced by the RBI in the past, the central bank introduced a new basis for banks to determine lending rates, based on the marginal cost of borrowing, with effect from April 1, 2016. All the loans granted by the banks, are necessarily to be given under the MCLR regime. The MCLR takes into account the marginal cost of funds for the banks, for a specific period, to arrive at the final lending rate. What the SBI and other banks have done, is reduce their MCLR. continued on p2 How a change in the MCLR affects home loan rates Under the MCLR regime, home loan interest rate will not change with each and every change in the MCLR. The banks are allowed to have a reset clause in the lending agreement, to fix the periodicity or date for change in the actual lending rate to the borrower. The premium, which the banks have over their base rate or MCLR for a particular loan, is generally called ‘spread’ and is expressed as certain points over the base rate or the MCLR. The benefit of reduction in rates will accrue to borrower, if the borrowr had already switched to the MCLR from the base rate or PLR regime. For borrowers who had either borrowed under the base rate regime or had shifted to the base rate regime from PLR, the continued on p4 PRICE TRENDS JALANDHAR Buyer’s market resets the rates annually (from the date on which the loan is taken), while some other banks do so every quarter. Also, the change in the interest rates would usually be seen in the reduced tenure and not in the EMI unless you decide to refinance your loan. The MCLR system was adopted by banks from April 1, 2016, replacing the base rate system. Therefore, those who had taken home loans before April last year 8.90 per cent for one year loans, 8.10 per cent and 8.15 per cent, respectively for two year and three year maturity. As a result home loan interest rates have come down substantially. Women borrowers of SBI can now avail home loan at 8.60 per cent, while the rate will be 8.65 per cent for others. MCLR has gone down for other banks also, e.g. for Punjab National Banks the one year MCLR is 8.45 per cent against 9.15 per cent earlier, benefit will not be as substantial as the reduction in the MCLR. Moreover, it will be available only as and when the bank announces a reduction in its base rate. The existing borrowers, who have borrowed under the MCLR, will get a benefit if there is no reset period restriction or the reset period is over. As the banks have reduced the MCLR but at the same time increased the spread, new borrowers will not get the home loan at the same rate as the reduced MCLR. The new rates will be higher than what it would have been, had the banks not changed their spread. However, the reduction in MCLR will certainly benefit the existing borrowers under this regime, as the spread will remain the same for them, unless they have a reset clause and the reset period is not yet over. c m y b have come up, developer lobby across the country has shifted its gears towards developing budget houses majorly. Almost 50,000 units are getting ready to be delivered by 2022 in Gurgaon itself; and across the country, this number is multiplying”. However, private developers are also looking for a larger role in this expansion and freedom to construct and market, under the broad policy of the government. Parveen Jain said that private sector developers, with some flexibility in planning, execution and marketing alongwith over the prevailing prices. Along with this the reducing gap between rental yield and EMIs also makes buying a better option than renting. “It’s a buyers’ market now and those who had deferred purchases, due to high property prices, would be welladvised to initiate their research activity. The government and banks have taken the initiative here. There's no doubt that these stimuli would help build confidence, improve sentiment and we are in for good times in the real estate sector”, says Sudhir Pai of realty portal Magicbricks.com . Locality Average Capital Value (psf) in Rupees Amritsar by-pass Road Model Town Ladhewali Uddham Singh Nagar Police Line Hoshiyarpur Road Kalia Colony JRC Adarsh Nagar Mithapur Road Average Rental value (psf) in Rupees 5-7 5-8 6-9 5-6 4-5 4-5 4-5 6-9 5-9 4-5 2000-4000 5000-7000 1200-3000 2000-3000 1200-2200 1500-3500 1000-2500 3000-4000 6000-7000 1500-3500 Source: PropTiger Datalabs
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