Home Loan Rates May Increase

Home loan rates may have peaked, according to Deepak Parekh, chairman, HDFC, the largest housing finance company in the country. Interest rates are linked to inflation and there have been signs that inflation is moderating, said Mr Parekh.

“Interest rates are linked to inflation. If inflation is controlled, interest rates can also be contained. In the past two weeks, we have seen from the data coming out that inflation has marginally tapered off. If the trend continues, it would mean that the peak has come already.

I think, with oil and commodity prices tapering off and food prices stagnating, we have peaked already,” said Mr Parekh. However, he added that there were some who believed that there would be one more round of interest-rate hikes.

Delivering the keynote address at the Ficci summit on real estate on Wednesday, Mr Parekh said that slowdown in the real estate market — a long overdue adjustment — was needed, and this, to some extent, has already happened. He pointed out that the real estate industry was still not out of the woods. “I do foresee some more pain in the real estate market in India,” said Mr Parekh.

Mr Parekh also had a suggestion to industry for avoiding situations like the one witnessed in Singur. According to Mr Parekh, the main problem in such cases is that land acquisition is done at fair value, but subsequently when project plans are announced, the value of that land escalates and then the original sellers feel cheated or disgruntled with their compensation.

“It is difficult to find outright solutions, but experience shows that the need of the hour is transparency in such land dealings, clearer land titles and making those losing their land stakeholders in the project.

Offering them equity in the project will give them long-term economic benefits, rather than leaving them with the fear of being displaced and then subsequently becoming the grist for someone else’s battle,” said Mr Parekh.

The doyen of the country’s housing finance industry was also critical of the move to extend higher floor-space index (FSI) for redevelopment projects in South Mumbai. Last week, the Supreme Court allowed the Maharashtra government to demolish pre-1940 buildings and replace them with new towers.

The state government has been allowed to grant builders increased development rights as an incentive for redevelopment. According to Mr Parekh, higher FSI will result in building within five feet of one another. “Where is the open space? Where is the water? and how will the sewage system work?” said Mr Parekh.

He pointed out that some of the old structures had hundreds of dwelling units. And for rehousing, there was not enough space for redevelopment after everyone is rehoused.

One Comment

  1. Posted September 15, 2008 at 6:11 am | Permalink

    Banks are all set for the anticipated correction the realty market and it’s the prospective home loan borrowers who will be hit. Expecting a fall in property rates, lenders have either increased or are planning to increase the borrower’s share in the actual cost of a home (down payment). Until recently, some banks were financing up to 90% of the home purchase value while other conservative ones had been giving out 85-90% of the actual price as loan. But according to a survey, some banks have now started increasing margins on home loans, which means borrowers will have to shell out more while purchasing a house. Even the public sector banks, which are already strict with their margins, might increase the borrower’s share. However, big lenders like ICICI plan to stick to current margin levels.For more view- realtydigest.blogspot.com

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