No significant impact of high interest rates on housing sector

New Delhi, May 27 (UNI) Bankers as well as property developers say gradual hardening of interest rates have not yet taken a toll on the demand for housing, with new strategies being devised by builders to take the wind out of sail.

The other reason is that the cost of real estate in most parts of the country, especially in the National Capital Region (NCR), has gone up manifold, and in view of the perception that these prices will continue to skyrocket at least till 2010, the consumer is overlooking the slightly higher costs of borrowing money.

Banking industry sources say interest rates may have peaked and do not expect further hikes. They cite the reduction of risk weightage to the housing sector in the recently announced Annual Monetary Policy announcement by the RBI as an instance.

The moral injunction by RBI Governor Y V Reddy to Public Sector Banks not to hike interest rates on housing loans of less than Rs 20 lakhs has been taken in the right spirit by the banks.

For instance, the Union Bank of India (UBI) has reduced by 50 bps interest on housing loans below Rs 20 lakhs.

Most banks have scrupulously tried to put as minimum as possible a burden on the small borrowers.

Besides, banks have re-worked the Equated Monthly Instalments (EMIs) in a manner that there is not much immediate burden, but have left it for balancing in the long term.

Thus the fears of growth of the housing demand petering out have been unfounded, developers say, ''Yet the situation is no longer exactly the same as it was some time back.'' Many property developers have held on to their price line, though across-the table negotiations do result in discounts.

In a tacit admission of the tightening market situation, one developer, Samiah International Builders, has announced discounts on two of its projects -- Lake City at Rudrapur near the Uttrakhand capital of Nainital and Garden City at Hapur in Uttar Pradesh.

The builders proposal works as follows: between the date of booking and date of possession of a flat, the builder will bear the customers pre-EMI payments.

''In effect, we are offering the customer discount of 12.5 per cent,'' Mr Jamil A Khan, Chairman of Samiah International recently told a Press Conference here.

Normally, between the date of booking and date of possession buyers pay EMIs for the project.

Buyers are usually squeezed between rents and EMIs, thus the marginal buyer is unable to buy a house, even though he has enough to pay for the margin money.

Is this option better than an upfront discount? Yes, says Mr Khan, as the customer will be compelled to take a loan for a lower amount.

The Rudarpur project is worth Rs 1,235 crore and Hapur Housing scheme Rs 515 crore. The Housing and Urban Development Corporation (HUDCO) is funding 20 per cent of the Hapur project cost.

Mr Khan says he will continue with his work for providing housing to government employees and defence personnel. He said he was instrumental in constructing complexes for the employees of the PMO, Rashtrapati Bhawan, Cabinet Secretariat and other Ministries. He said he has also constructed a Missile Resistant Building for the Indian Army.

All in all, there is hope for customers faced with tight cash flows bearing dual burden of rents and EMIs to build their dream house.

UNI