Housing cos pin hope on cheaper loans

As PM talks of lower lending rates, housing companies prepare to cash in.

People troubled by demonetisation are eagerly waiting for some tangible benefits.

No wonder, Prime Minister Narendra Modi promised cheaper loans while formally launching ‘Housing for All’ in rural areas, a scheme that aims to provide a pucca house to every rural household by 2022.

The scheme targets 10 million houses by March 2019.

Beyond the rural housing scheme, for which the government will provide financial aid, a cheaper lending rate will boost housing demand, especially in the affordable segment.

“Real estate buying would get a boost the moment interest rates come down… It seems that rates are going to come down,” said Varun Gupta, director at Ashiana Housing, a developer of affordable homes.

Ashish Puravankara, managing director of Puravankara Projects, said, “People have kept their decisions on hold. The moment rates come down, they would start buying.” His company develops affordable homes under Provident brand.

According to the Reserve Bank of India, banks have collected deposit of about Rs 5.4 lakh crore between November 10 and November 18, while they disbursed only about Rs 1 lakh crore.

As a result, many banks have brought down deposit rate by 15 to 25 basis points. Bankers have also indicated that with huge resources and limited opportunity to deploy, they expect lending rates to soften.

“My guess is that there will be a reduction of at least 100 basis points in lending rates,” said R Vardarajan, managing director, Repco Home Finance, a Chennai-based non-banking finance company focused on lending for homes in Tier-II and -III towns with average ticket size of Rs 13 lakh.

Affordable houses up to Rs 15 lakh currently attract interest rate of around 9.15 per cent in urban areas and about seven per cent in rural areas.

“Growth for banks might be subdued in November and December, but from January onwards banks would look at reducing interest rates, since they will have huge deposits,” he added.

The Modi government’s focus on affordable housing has already attracted big players like Mahindra Lifespace, Tata Housing, Shapoorji Pallonji Group, Assetz Property Group and Puravankara Projects. One player -- Emgee Group -- is planning an investment of Rs 1,600 crore in the affordable housing segment over the next five years.

“After the recent demonetisation move, land prices will plummet -- more so in the Tier-II and -III cities, and the fringe areas of metros. This, too, will aid the cause of making homes more affordable in India,” says Anuj Puri, chairman & country head, JLL India.

Private equity (PE) players are willing to partner with developers operating in this space and fund such projects. Nisus Finance Services, Brick Eagle Capital, Avenue Venture Partners Real Estate, Carlyle, Essel Finance Advisors and Managers LLP, Provident Housing and International Finance Corp are some PE firms helping developers with affordable housing projects.

Rajesh Krishnan, managing director & chief executive, Brick Eagle, a PE firm which invests in affordable housing, said, “Unless loans to developers of affordable housing projects are declared as priority sector lending, banks will not look at lending to affordable housing projects.”

Some industry insiders said the impact on affordable housing sector would be visible more in the longer term. 

“Affordable housing sector would see long-term gains. The segment mostly sees property buys from salaried customers who are end users, so transactions in black money are mostly non-existent.

However, a fall in interest rates would help in the rise in sales of affordable houses,” said Parveen Jain, president, National Real Estate Development Council.