Housing Industry - Just the Beginning

While the government’s stimulus package for the housing industry is welcome, more initiatives are required, says Archana Sinha

Home buyers have something to smile about as middle-income groups looking for smaller homes can now buy without burning a hole in their pockets. All public sector banks will now offer loans at 8.5 to 9.5 per cent for homes costing between Rs 5 lakh to Rs 20 lakh. According to the banks this will help mobilise the housing industry, as nearly 80 per cent of their portfolio consists of this segment.

Nayan Shah, managing director, Mayfair, who has many projects in Virar, Nala Sopara and areas around, says, " Home loans have come back to 2007 rates and will give a big fillip to buyers in the middle class segments. Our project at Virar, Mayfair Virar Garden, with two bedroom flats between Rs 14 to 19 lakh in a well laid out township, good roads, good supply of water and connectivity to the station, will see more enthusiastic enquiries from buyers who were holding back.”

Anil Mittal, director, Mittal Builders, too has expressed happiness saying, "We have a low-cost housing project called Mittal Enclave at Naigaon east where we
are selling 450-500 sq.ft. for Rs. 2000-2100 per sq ft. With home loans being slashed, we expect more customers to turn up. Private banks should also reduce rates for the momentum to continue."

While industry experts have hailed this as a positive step they also feel that more is required to be done.

Says Sanjay Verma, executive managing director, South Asia and Australia, Cushman and Wakefield, "The decision to rationalise home loan rates for the priority sector by public sector banks is a positive move and will trigger demand. The concern of lack of credit for developers remains despite the announcement and till the time a feasible solution is found, it may cause inflationary pressure if we end up with a demand-supply mis-match."

Harsh Roongta, chairman, Apna Loan also echoes similar sentiments when he says, "This will boost the housing segment more towards the outskirts, but not in the city or even in the western suburbs, where land prices are high and developers have built at exorbitant prices. Of course in tier 2 and tier 3 cities this will give a small fillip. One needs to remember that in the bigger cities there is no supply in this category, so there is no scope to buy."

Renu Sud Karnad, joint managing director, HDFC Ltd, feels that while interest rates are important, "Higher interest rate is not a big determinant in the buying decision of the end user because housing is a real need and during a tenure of 15- 20 years the interest rates will continue to vary as per market conditions. Interest rates although very important, only affects his affordability that is, his capacity to borrow in terms of the absolute loan amount. So cutting of rates will help. But for the end user the price of the property matters more as once he decides to buy at a particular price, the price stays forever. He is not going to sell if tomorrow the prices rise as his need for a roof is not going disappear."

Most feel that in metros where the capital values are high, this move will only help recently announced affordable housing projects or development for the economically weaker sections.

Kumar Gera, chairman, Confederation of Real Estate Developers Association of India, says, “Flats costing between Rs 5- 20 lakh would be available way beyond municipal limits and commuting hassles and resultant costs would mean people will be hesitant .”

He adds, "I think the government has made moves to stimulate the market, but it should have spread it across segments. For example, for metro cities they should have come out with schemes for homes up to Rs 40 lakh, which would have really seen activity even among buyers from the corporate sector, especially now when
some builders are also softening their prices to some extent. This would have enthused the entire industry, across segments, seeing more production and consumption of cement, steel, paint and other collaterals, in turn generating employment and boosting the economy."

The other deterrent is the deadline of June 30, 2009. Asks Roongta, "Is this meant to rush the buyer? He feels the buyer will also want to factor in other considerations, like quality of construction and other amenities. "Moreover it also creates a suspicion, whether the loans will go up later, whether the government's intention is right," he says.

On the other hand, it is not realistic for developers either, says Gera. "Even if they redesign their new projects they cannot complete them before 18 months. That much time will be required for land acquisition, clearance and finishing one phase of construction," he adds.

What is required of the government is to increase liquidity, to lend to banks at lower rates so that there is money in the market, feel experts. The government also has to make land available at lower price.

Kumar Gera says, "This is a welcome move, but a very meek step. Bolder steps are required. There is a reserve of more than 250 billion dollars of foreign exchange. If one compares our spending with Japan and China, where they are operating under similar economic condition, ours is just a speck. Being too cautious will not help."

Says Abhinandan Lodha, of Lodha group, "More incentives are of course required from the government but developers should bear in mind that buyers are sensitive to pricing and have to launch their projects accordingly. Housing from Rs 35-45 lakh should be available in good locations."