Interest rate cut not enough to buy property

Like every festive season, this year also has banks and builders coming together with lucrative offers for home buyers. Several banks have cut rates on home loans by 25-50 basis points and real estate developers are offering freebies and discounts on under-construction and ready -for possession properties.

Bank of Baroda, Allahabad Bank, Central Bank of India, IDBI Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank and Union Bank of India have cut rates by 25 to 50 basis points on a home loan of Rs 25 to 50 lakhs. This is part of the festival period offer which typically starts with Ganesh Chaturthi and goes on till after Diwali, sometimes extending till the New Year.

But, before you do take plunge, make sure you have enough funds.

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First, you will have to cough up the 20 per cent down-payment because property prices are still high. In many cities, builders have sold it to investors. A recent Knight Frank report said almost 80,000 flats were unsold in Mumbai.

Two, there will be registration and stamp duty to be paid from the pocket. And that's not all. Many builders will charge separate fees for car parking and so on.

Builders, on their part, are trying hard as well. There are freebies on offer such as free parking, electrical appliances and furniture. Some are also offering gifts like gold coins and foreign trips.

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For instance, as Ramesh Nair, managing director (West India) at Jones Lang LaSalle's (JLL) says, "The most popular offer is the 80-20 scheme, where the buyer can book his property by paying just 20 per cent of the value of the house."

But, these factors should not really push consumers to go ahead and buy a house. Currently, property prices are very high. The cut in interest rates will only boost sentiments. A cut in interest rates can at best improve eligibility of the borrower. But that alone will not affect home buyers' decision to buy or not, says an official from a housing finance company.

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"The property price is more important than interest rates. If interest goes up, the borrower will have to pay more and if to goes down, he will save. But it is price that the borrower is getting married to. If you are happy with the price then you must go ahead and buy the property.

Not otherwise,"' says Nair, adding that people won't really buy unless the developers make home buying more affordable. Hence, even a 200-basis-point cut in the home loan rates may not trigger home buying to a large extent.

However, people who are looking to buy second property and funding it mostly from their own pocket may use the opportunity to buy.

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Of course, traditionally for banks, this is the period when the loan growth in the retail sector picks up. R K Bansal, Executive Director, IDBI Bank. Of the total business generated about 65 to 70 per cent happens during the October to March period as compared to the April-September period.

"Since there is a slowdown this year, overall loan sanctions are lower. Besides real estate prices are up. But in terms of percentage the share of loans sanctioned during the festival period may remain the same," he says.