Demand for Home Loans May Decline: Experts

At the peak of the global housing crisis in 2008, a group of executives at State Bank of India (SBI) were busy devising a new home loan scheme meant to boost the sluggish demand. The growth in housing loans had fallen from a high of 31.2 per cent in December 2006 to 4.1 per cent in March 2009. After State bank of India (SBI) launched its special home loan scheme, home loan portfolio of banks in India rose 30 per cent on a year on year basis till September 30 2010, against 20 per cent in 2009-10, according to data from the Reserve Bank of India (RBI). In 2011, as the housing market in the West slowly picks up, the Indian market may be in for slack. SBI withdrew its home loan scheme with effect from May, after RBI raised concerns on the borrowers’ ability to repay them over longer tenures. After a period of sustained growth, bankers expect a moderation in home loan growth in the coming months. Rising interest rates and property prices are once again set to hit demand for home loans, say bankers.

The impact of the slowdown is already visible in the priority sector lending portfolio of banks. According to RBI data, the growth in outstanding credit of banks, under priority sector housing loans, halved to 6.80 per cent in April, against 11.90 per cent in the year-ago period. SBI, the country’s largest public sector bank, expects a moderation in the growth in home loans. “We expect a slowdown, a moderation in the home loan market. It has been evident in the last two quarter. It is difficult to estimate the extent of the moderation,” said Diwakar Gupta, managing director and chief financial officer, State Bank of India.

Close to 30 per cent of the home loan market in India is currently accounted for by the teaser home loan market, according to Monish Shah, director, Deloitte, India. “The withdrawal of teaser loans would have a marginal negative impact on the demand. After 2009, in the two-to three year period, the home loan growth was mostly seen in the teaser home loan segment. It gained about 20-30 per cent market share, which is an absolutely phenomenal growth,” said Shah. SBI launched the special home loan scheme in 2008, under which it offered an interest rate of 8.5 per cent for a loan of Rs 5 lakh and 9.25 per cent for a loan of Rs 20 lakh, with a reset clause after every five years. The scheme was tweaked several times since then.

High interest rates are also expected to play a dampener. “Demand for home loans is likely to be impacted due to high interest rates. The impact would be more visible in the next two months. Both investors and home loan buyers are likely to wait for few months before buying property. In the last one year, the burden of easy monthly installments for borrowers has gone up by 15-20 per cent,” said S L Bansal, executive director, United Bank of India. The slowdown in home loan disbursements is already visible. The home loan growth recorded by United Bank of India till April was about 10-11 per cent on a year-on-year basis, against 12-13 per cent last year. R V Verma, chairman and managing director, National Housing Bank had said there was a slowdown in the growth in housing loans due to rising interest rates and property prices.

Smaller banks expect a level-playing field after the exit of teaser home loans from the market. Allured by lower interest rates, several home loan customers had shifted to teaser loans. “Now, we hope our customers will remain with us. Earlier, we saw some customers moving to teaser home loans. “During the first few months, the demand for housing loan is generally low, but for the whole year, we expect a reasonable growth in the home loan portfolio,” said M Narendra, chairman and managing director, Indian Overseas Bank. Rising property prices have also dented the prospects of robust home loan growth. According to realty consultant Cushman & Wakefield, residential property prices in Delhi-national capital region and Mumbai saw prices rise 36 per cent in 2010 on good demand. The trend was reflected in loan disbursements for banks as well. Housing Development Finance Corporation, one of the biggest players in the home loan market, saw fourth-quarter net profit rise 27 per cent rise last year.

“In some markets, the outlook on property prices is expected to correct, while the interest rates are high. This could lead to a slowdown,” said Vibha Batra, co head, financial sector ratings, Icra. “A lot of factors would contribute to the slight slowdown in credit off-take. Affordability, interest rates and uncertainty in the real estate market are some of the reasons. So, going forward, there would be a slowdown in the home loan market for sure,” Deloitte’s Shah said.

India plans debt fund to finance infrastructure

New Delhi: India will soon set up a debt fund to facilitate financing of long-term infrastructure projects. The government said on Friday it has finalised the broad structure of the fund that would be set up either as a trust or a company.

"Infrastructure debt fund is a novel attempt to address the issue of sourcing long-term debt for infrastructure projects," the Finance Ministry said in a statement, reports IANS.

After consultations with potential investors, infrastructure companies, regulators and experts, the Finance Ministry has finalised the broad structure.

As per its draft, the proposed fund would be set up either as a trust or as a company.

A trust based infrastructure debt fund (IDF) would normally be a Mutual Fund that would issue units while a company based fund would normally be a form of non-banking financial company that would issue bonds.

Finance Minister Pranab Mukherjee had on February 28 announced in the budget for this fiscal (2011-12) the setting up of debt funds through special purpose vehicles to attract foreign investments in various infrastructure projects.

To attract off-shore funds into IDFs, Mukherjee had also announced that tax on withheld interest payments on the borrowings by the IDFs would be reduced from 20 per cent to 5 per cent. Income from the IDFs is also proposed to be exempted from income tax.

"The structure of IDFs would be closely reviewed for its efficacy and further refinement. RBI will issue regulations for setting up of IDFs on the company route," the statement said.

India aims to invest over US $1 trillion on infrastructure projects during the 12th Plan period (2012-17) as against the estimated US $500 billion during the current plan period.

Infrastructure projects, given their long pay-back period, require long-term financing in order to be sustainable and cost effective. However, banks which have been the main source of funding these projects are unable to provide long-term funding given their asset-liability mismatch.

IDFs through innovative means of credit enhancement is expected to provide long-term low-cost debt for infrastructure projects by tapping into source of savings like Insurance and pension funds which have hitherto played a comparatively limited role in financing infrastructure.

Fund Hit Realtors Selling Land Banks to Complete Projects

Sluggish sales, poor performance of the stock on the bourses and difficulty in raising money from banks and private equity (PE) players are forcing many real estate developers to turn to sell their land banks to raise funds to complete their projects. “A lot of real estate credit is lying unused by the banks and the banks are extremely cautious and selective in lending money to real estate players,” Naveen Raheja, chairman and managing director (CMD), Raheja Developers, said.

“Few players, who have good credibility and track records in terms of repayment of loans and overall past experience, are only being lent money by the banks,” Raheja added. As banks remain reluctant to lend to the realty sector large companies like DLF, Emaar MGF, Omaxe and HDIL, among others, that have huge debt portfolios are turning to sell their land banks to reduce their debt and raise money for their pending projects. DLF, the country’s largest developer, sold land worth Rs 403 crore in Pune, Amritsar and New Gurgaon in the third quarter of 2010-11. It is planning to sell 12 million sq ft this fiscal to raise about Rs 7,000 crore. DLF said it will continue to sell land assets to raise money.

DLF, in its annual presentation, had already indicated that going forward the company would focus on launching plots than group housing as it helps generate faster cash flows. DLF needs to repay Rs 2,700 crore debt this fiscal and has net debt of Rs 21,424 crore. The company said that of the planned launch of 12 million sq ft sales this fiscal, 10 million will be plotted development in cities like Indore, Gurgaon, Chandigarh and Lucknow. The rest will be group housing projects.

Increase in Interest Rates May Result in 10-15% Hike in Property Prices

Housing prices may rise by 5-10 per cent in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India’s decision to raise key policy rates by 25 basis points. “Property prices are bound to go up in next 3-6 months by 5-10 per cent across the country,” Confederation of Real Estate Developers’ Associations of India (CREDAI) Chairman Pradeep Jain told PTI.Jain, who is also the Chairman of Parsvnath Developers , said the hike in repo and reverse repo rates would result in an increase in interest rates for builders and the same would be passed on to home buyers.

He, however, said demand would not be hit despite the expected rise in interest rates on home loans. “People will continue to buy knowing that housing prices would go up further,” he said. Instead of demand, Jain said supply would be affected, as the increase in interest rates would impact the liquidity situation of small developers. Asked about impact of the hike in repo and reverse repo rates on the realty sector, DLF Group Executive Director Rajeev Talwar said, “The constant increase in interest rates over the last one year would definitely have an impact”, and suggested that the government initiate reforms to boost the supply of housing. The Reserve Bank, for the tenth time since March, 2010, raised the repo rate by 25 basis points to 7.5 per cent and the reverse repo rate by a similar margin to 6.5 per cent today.

Echoing similar views, Credai President Lalit Kumar Jain said, “Any increase in the rate of interest will be counter- productive and my fear is that it will give rise to inflation instead of curbing it.” “… The cost of funding from the developers’ point of view would also shoot up. This will be passed on to the customer, who is already under stress,” Jain, who heads Mumbai-based Kumar Urban Development Ltd , said. Raheja Developers Chairman and Managing Director Naveen Raheja said: “As the cost of money goes up, the cost of construction and production will also go up. This will lead to further inflationary pressures.” The need is to increase supply so that demand pressures can be eased and consequently, the prices are curtailed, he added.

Will real estate soon be sold online like a commodity?

Lani Rosales

Social commerce online and real estate

Could social commerce be coming to real estate? Could we be near the day where homes are a commodity like shoes or purses? Could the world of “I’ll only buy it if I know the seller” over-transparency make it to real estate soon?

A new startup is being announced today, Copious, which simply prompts people to “buy from and sell to people, not strangers” and after logging in with Facebook (to eliminate anonymity), users can see not only the face of the seller but how they are connected via the Facebook social graph (who they have in common) and who of their friends have bought from the seller before. This is the ultimate transparency in commerce- seller reputation is not linked to some made up name, it is their actual Facebook personal profile.

This concept is being labeled disruptive but we see it more as modern- whether we like it or not, people are looking to their social graph online to validate everything from where they eat to what they wear to where the live.

Copious will be integrating a “social pricing” option which allows sellers to give discounts and incentives for people sharing listings on Facebook and will have integration with Twitter and other marketplaces like eBay (for reviews), blogs, etc. and the site will recommend products to buyers based on their history of Facebook “likes” as well as what their friends have bought through Copious.

Facebook has a marketplace but the focus is selling between friends whereas Copious is simply designed to add a social layer to the transaction regardless of social connections (or lack thereof). It’s the ultimate empowerment for your inner creeper.

How Copious impacts real estate

Today, we introduce you to Copious as a hypothetical scenario for real estate. You as a Realtor would not post a home on Copious because (a) users expect the actual seller to be the item poster and (b) there is a 10% transaction fee which is unreasonable for a major purchase like a house (although there is no listing fee).

Copious (along with Facebook Marketplace) add an element to the world of commerce that is newly emerging- the social graph. Currently, if a buyer is really a creeper, they can search tax records for a home owner, search Facebook for their profile and creep them that way, but few buyers have thought to do this, rather startups are opening the door to that train of thought.

A consumer doesn’t need to be connected directly to a buyer, but there is a rising interest and trust being put into social connections. Consumer thought is starting to look like this: I’m looking for a couch. I see a couch for sale on Facebook by a friend of a friend, so there is accountability. If baby rats come out from inside the cushions, I can yell at my friend for having a crappy friend who sold me the sofa.

The social graph is rising in importance, but real estate should focus on how trust is being defined in modernity- it is becoming less about reputation and more about connections via the social graph. There is good and bad to this- the good is that shedding anonymity in commerce ideally leads to a cleaner transaction and gone are the days of fOakleys and Prrada bags but the bad is that the social graph can be gamed by people who spend the day adding hundreds of friends in hopes that half will friend them back, grow their social graph and who cares about reputation, they’re connected, thus stamped as trusted.

Although Facebook is expanding internationally at a rapid rate, it lost six million American users last month, the first time in over a year that the site has experienced an American user loss. Most cite privacy concerns and people we know personally that have left cite “drama.” Facebook is not the end all be all to marketing despite its behemoth size. Many are scaling back their number of connections, especially the early adopters who have tired of spam.

The takeaway

Because behavior on Facebook is just now beginning to change and go back to a more small town feel that it started with (despite how big it is), trust is important and startups like Copious will do well, but adding the “trust” between a house buyer and seller doesn’t seem realistic to us, regardless of the price.

People put more trust in the Realtors representing both sides because they handle the transaction, not the actual buyer and seller, so we reiterate as we have in years past that real estate is not a commodity, regardless of shifting trends online. There are some neat concepts to think about, but there are only so many ways to buy and sell a box/house.

About this Columnist

AgentGenius Editor-in-Chief: Lani, named one of Real Estate’s 100 Most Influencial, as well as 12 Most Influencial Women in Real Estate, is a business writer hailing from the great state of Texas in the city of Austin. As a digital native, Lani is immersed not only in advanced technologies and new media, but is also a stats nerd often burried in piles of reports. Lani is a proven leader, thoughtful speaker, and vested partner at AGBeat. You’ll often find her on Facebook and Twitter, so feel free to reach out and get to know her.