Archive for December, 2009

ICICI Bank to focus on home-loans

December 31st, 2009
Mumbai: With the real estate segment witnessing a comeback after the economic slowdown, banks are now focussing on the home-loan segment, a top banker said. “We are focussing on the home-loan segment at the moment as there is a lot of activity in this sector (home)…people who stopped buying a few months ago, are back again,” ICICI Bank’s Managing Director & CEO, Chanda Kochhar, said Friday.
The bank had recently launched a home-loan scheme under which 8.25 per cent interest rate will be fixed for the first two-years for loans sanctioned from December 1, 2009 to January 31, 2010, irrespective of the loan amount. The first disbursement of the loan should be availed before March 31, 2010.

From the third-year onwards, the lender would charge a floating interest rate depending upon the then prevailing floating reference rate.

News Published Under:  Manorama Online

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Builders see bright prospects for 2010

December 31st, 2009

Next to the information technology industry, it was the housing and real estate sector that was the talking point of 2009.

The long-term players in the field took a wait-and-watch approach, and they believe that it was worth waiting.

The prospects for 2010 look bright, say the builders in unison. As the heady prices of the boom period came down, people heaved a sigh of relief. It was good because a market correction was necessary, says K. Lava, managing director, Skyline SFS.

A fair price range is important for the market, he adds. And the way the market had boomed, the sector had become a playfield for all comers out to make some easy money. Now that the mad rush has died down over the last one year, only the strong players who have solid finances and a record of timely completion of projects continue in the field.

The white-collar workforce in the country looks at a car as the first priority and then comes housing, Mr. Lava says. The automobile industry started picking up by mid-2009, while the housing sector saw good momentum by October this year, he adds.

The Union Finance Minister has said that there has been a good growth during the year, surpassing the estimates. This reflects all-round growth, Mr. Lava says.

The property sector, one of the major contributors to growth, cannot be left behind. This is not a sector people can ignore, says M.D. Jairaj, managing director of Jairaj Builders.

Lessons

Some important lessons that the builders have learnt is the pricing of property. There is definitely more demand for houses with areas between 800 sq ft and 1,500 sq ft that cost between Rs.20 lakh and Rs.35 lakh. Many builders have turned to make more offerings in this category.

There is more movement in smaller size homes, but an all-round demand for all categories of houses was experienced in the latter part of the year, Mr. Jairaj says.

More demand will automatically come through by March when stocks will finish by the end of this financial year, says George E. George, managing director, Infra Housing.

The recession has brought down the prices to an affordable level, perhaps. These prices are likely to continue into the next year. Prices have become steady and the better prospects in store are not likely to raise them, Mr. George says. The recessionary trend has been good in the sense that there is more stability in pricing compared to the boom period when prices had gone up sky-high. The builders see the growth in metropolitan cities such as Delhi and Mumbai as a benchmark for better prospects for the property market in the coming year. They are on the upward track in the two cities and Bangalore has also started reflecting the same momentum. So, the effect on smaller cities such as Kochi is also expected to be on the same track, Mr. George says.

News Published Under:  The Hindu

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A closer look at repayment options

December 15th, 2009

Housing loan seekers must analyse whether the special repayment options offered are beneficial. 
For many customers of home loans, the EMIs (equated monthly instalments) remain constant throughout the tenure. For example, if a loan of Rs.20 lakh is taken at nine per cent interest and the tenure fixed is 15 years, then the EMI will be Rs.20,286 throughout the tenure if the interest rate is not altered.

However, these days, banks and home finance companies offer a number of repayment options, which are a bit complex. Here is an effort to analyse them.

SURF

If you are a professional seeking a home loan and having good employment, no bank or home finance companies will like to lose you as a customer.

They will lure you with a higher loan amount by offering a telescopic repayment facility, also called as the step-up repayment facility (SURF), under which the EMIs will be less initially and will gradually increase over fixed intervals.

Let us suppose you are eligible for a loan of Rs.20 lakh under the regular scheme with EMIs of Rs.20,286 for 15 years at nine per cent interest. Under SURF, you will be eligible for Rs.25 lakh for the same tenure and interest, but the EMI will be Rs.18,750 for the first 24 months, Rs.25,357 for the next 60 months and Rs.29,325 for the balance 96 months.

On the face of it, it looks attractive. For a higher loan, the initial EMIs are less. But it is beneficial to the lender and not you, as in the first two years, the lender will be collecting only interest. As a result, the total interest payable over 15 years will be 10 per cent more than in the normal scheme.

For a loan of Rs.25 lakh under the regular scheme, the total interest payable will be Rs.2,064,133 in 15 years, whereas in SURF, the total interest payable will be Rs.2,286,608, an additional interest of Rs.2,22,475. Hence SURF scheme is not advisable.

FLIP

If you are applying for a home loan with your father/mother who is left with less service (or if your service left is less than 15 years and your wife has more service left), in the regular scheme, your loan eligibility will be less as the tenure offered will be restricted to the service left for the elder applicant.

Under these circumstances, the flexible loan instalment plan (FLIP) comes in handy. It works the exact reverse of the SURF scheme. In the initial years (up to the retirement of elder applicant) EMIs will be higher and for the balance period, the EMIs will be much lesser.

For instance, a man is left with five years of service with a salary of Rs.40,000 a month and his wife has 12 years’ service and her salary is Rs.25,000 a month. In the normal scheme, the couple will be eligible for a loan of Rs.12.5 lakh for five years’ tenure, considering 40 per cent of the combined income towards EMI and interest rate of nine per cent. If you opt for FLIP, the eligibility will get enhanced to Rs.16.5 lakh. For the first five years, the EMI will be Rs.26,000 approximately, and for the balance seven years, it will be Rs.10,000.

This scheme is advisable as applicants will get a higher loan amount and end up paying lesser interest compared to regular schemes.

Home saver account

In the regular home loan, you go on paying EMIs comprising interest and principal amount. It is a non-transactional account. In the home saver account, the home loan account is made transactional by connecting it to a current account. It works like an overdraft facility and the borrower can park his surplus savings in the home saver account and can withdraw the surplus as per his needs.

Till the surplus (other than EMI) amount is lying in the account, it will earn same interest as that of loan. Such interest earned is accounted as principal loan amount repaid on a daily product basis. In this scheme, one can save a lot of interest payable on home loan as tenure reduces considerably. The scheme is ideal for business class applicants, who will have a current account for their business deals, which earns no interest and will have a high turnover on daily basis. The scheme can be opted for by high net-worth individuals who can keep surplus funds parked in their home loan account.

Accelerated repayment

Under this scheme, the borrower is allowed to increase his EMIs as and when his income is increased and he can pay lumpsum amounts, which will be apportioned to the principal loan outstanding. In this scheme, the loan gets repaid faster resulting in a lot of savings in interest payment and the long-term debt closes much earlier.

This scheme is good for salaried class borrowers, as whenever they get an increment, or disposable income is increased, they can use it for increasing the EMI amount or use it for part prepayment.

The banks and the home finance companies will try to lure you by offering many special schemes, saying that the scheme is custom-made for you and will try to push you to seek a higher loan amount. This is because there is surplus credit available and fierce competition among banks and home finance companies is making it difficult for the lenders to attract good customers.

Hence, before finalising the option, the customer needs to thoroughly analyse whether the special repayment option offered is really beneficial.
News Published Under:  The Hindu

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Meeting the aspirations of the budget buyer

December 5th, 2009

The recessionary phase has, perhaps, made the builders change strategy and think of offering projects to people on the lookout for budget homes.

For this segment, a rather big one, the priority is owning a house and luxuries such as a swimming pool or a spa are low on the agenda. The builders here had not addressed this need well earlier.

Their target had been mostly the non-resident Indians who had funds to invest in property. But with the recession making this section delay new investments, the builders seem to have found a new market in the budget section.

Late entry

“It is not really true that builders have ignored the budget segment,” says Jayanthan Namboothiri, managing partner of Lotus Properties. The concept of flats has made a late entry into Kerala.

The upper segment of society readily accepted it and the builders were ready to meet the requirements of this section with luxury amenities.

These include anything apart from the basic flat and facilities.

What adds to the cost are facilities such as swimming pool, a Jacuzzi, a jogging track, a private jetty if it is a waterfront project, a health club, a spa and so on.

The budget buyers have looked upon living in flats as a luxury which they cannot afford.

The budget and low-budget flats have made a mark during the recessionary period. A major problem during the boom time has been the skyrocketing prices of land, Mr. Namboothiri says. Many people are interested in buying flats with areas of about 1,000 sq ft and prices in the range of Rs.25-30 lakh. Rajeev Kumar Cheruvara, director, Apple a Day Properties, says that there is a large segment for whom housing is a need and not an investment. The construction sector has failed to address the needs of this segment, he says, as most builders were not offering products that the end-user really needs. In many other industries, the profit margins range from 20-50 per cent, perhaps, but in the construction sector, the boom time has given builders 200-300 per cent margins, he adds.

Corrective measure

The recession is actually a corrective measure so that there are houses available at affordable prices, Mr. Cheruvara says. A good number of families have combined annual incomes ranging between Rs.4 lakh and Rs.6 lakh each.

A sum of Rs.25 lakh is the maximum that they can afford for a house.

Builders should have products with prices ranging from Rs.6 lakh to Rs.1 crore so that it can cater to all segments. There needs to be products that range from the popular to the premium in the housing sector, he adds.

A large number of people in the lower segment of society continue to build houses themselves on small plots of land.

Mr. Cheruvara says that one-bedroom villas at affordable rates will attract that segment.

A person who likes to build a house on three cents of land will be attracted. All these need to be without frills as people in this segment are looking for shelter and not luxury.

Though food, clothing and shelter are the basic needs of man, shelter has become rather speculative, he says. This is because the product is being designed for speculation.

Such affordable housing is usually found a little away from the city, maybe 6 km to 10 km away or even more. But some builders have started offering budget flats even in prime locations.

Anil Gopinath, marketing manager of Galaxy Homes, says, “We have found a good demand for two-bedroom apartments for Rs.10-15 lakh going up to a maximum of Rs.30 lakh. Two-bedroom flats with areas of 600 sq ft each have a good demand if built in the city. The location and price both have to appeal to the customers.”

These flats will have basic facilities and security but will be devoid of luxury amenities. Such housing will be a relief to a large number of people who find it difficult to build a home.

Low awareness

Mr. Namboothiri believes that awareness of living in flats is low in villages. This can be one reason that people feel reticent about approaching the builders.

It is people in urban areas who have picked up flats built in panchayat areas.

A change in attitude is, perhaps, round the corner and the builders catering to the segment believe that the demand in this segment is bound to increase slowly.

Mr. Cheruvara says that if affordable property is built, there will definitely be a buyer.
News Published Under:  The Hindu

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