Boon for Small Cities

With PSU banks cutting home loan rate, all those planning to buy a house in small towns will benefit, although those in metro cities have been left high and dry, says Rubina Shaikh

Even though public sector banks led by State Bank of India announced a reduction in interest rates on new home loans, the dejected faces of many among the world of realty tells its own story. On the flip side, some argue, and convincingly, that as India does not live in big metros and other big cities, the latest move would benefit those who live in Tier II and Tier III cities who plan to buy homes there. Both have some really solid arguments.

As for those who are not happy with the rate cuts, they are of the opinion that the efforts of banks to revive the realty sector by reduction in home loan rates would not make any worthwhile change in either Delhi or NCR region. They argue that prices of houses from the known builders are in the range of Rs 30 lakh and above. Naturally, those who are looking for houses need more than Rs 20 lakh in order to buy that dream house. For them, the banks have not done any great service. They also point out, rightly, that houses in the price range of Rs 5 lakh to Rs 20 lakh are few and far between in metros and important cities of NCR like Gurgaon, Faridabad, Ghaziabad and Noida. The demand-supply mismatch in the 'affordable housing category' defined as homes costing not more than Rs 25 lakh, leaves little to celebrate for people living in Indian's key metros and nearby towns. Will the recent cut in bank rates make any worthwhile impact on the sagging spirits of realty sector? P K Jain, executive vice president of PNB housing finance,says that it is true that reduction in home loan rates would not benefit all those who are planning to buy homes in big cities. He, however, says that there is an India, which lives outside metros and other big cities.

"The new rates would go a long way in helping all those home seekers who live in cities like Meerut, Amritsar, Karnal, Rohtak and Patna. There are many developers building houses in these places for those who can afford a house worth Rs 20 to Rs 25 lakh," he says.

Another banker says that apart from reduced loan rates, homebuyers have other reasons to cheer as well. As part of the total package, banks will provide free life insurance cover and waive processing and prepayment charges.These freebies should be availed.

However, all these arguments hardly impress Sunil Jindal of SVP group, which has many residential and commercial projects in the NCR. According to Jindal, the low interest rate that PSUs have declared for the loans of Rs 5 lakh to Rs 20 lakh means nothing for homebuyers. "We all know that rates in Delhi and NCR towns are much higher. And if anyone wants to buy a house he or she should have a lot more money than that. For a decent two-bedroom accommodation, a homebuyer might need to avail a loan above Rs 20 lakh, and that too when the prices of real estate have come down. If Government actually wants to address the real estate problem than the banks have to raise the cap to Rs 35 lakh."

"The limit of Rs 20 lakh is not enough and it must be revived to at least Rs 30 lakh. With skyrocketing land prices in all the key cities of the country, I don't think many people will rush to buy their homes. But, at this juncture anything is welcome for the realty sector," said Sanjeev Shrivastava, MD of Assotech.