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As rates and prices fall
Source : The Hindu Property Plus Published On : 2009-02-14 City : Kochi

       A clear picture of the housing sector is yet to emerge after the rate cuts and fall in property prices. But banks are more cautious in sanctioning loans, says SHYAMA RAJAGOPAL.

As the property and real estate boom has tapered off, riding on global sentiments, the banks experience a lower demand for housing loans, though interest rates have come down of late — in some cases to single digits. It is a time of uncertainty those looking for a house of their own as well as the banks.

When assessing the creditworthiness of loan applicants, banks are cautious, as they have to factor in downsizing and salary cuts, especially in the information technology sector.

The banks are strict in assessing the repayment capacity of the customers, while the latter are at a loss figuring out if it is the right time to buy property.

People are still waiting for prices to fall further, says a senior manager of a public sector bank. The prices have come down drastically and this has made people wait and watch. There is less demand for loans because people foresee a further fall, he adds. But the builders feel the prices of construction materials, such as steel and cement, and the labour costs have not come down enough to help them offer lower prices.

“So far, two stimulus packages have been announced by the government. Commercial banks and housing finance institutions have announced interest rate cuts; hence, the rates have come to single digits (8.5 per cent) [in some cases]. Reality prices have been corrected and look attractive. These recent developments encourage a spurt in fresh demand for housing,” says A. Patchier, Senior Manager, Can fin Homes.

While traditional private and nationalized banks have had a good run in the boom time, they had not gone overboard with housing loans. A vital part of a bank’s job is to draw a credit profile of the customer applying for the loan. Based on his or her income, repayment capacity, age and employment, the creditworthiness is assessed.

“We have had our campaigns and marketing strategies, but are a little reluctant to ease up on assessing the creditworthiness of the individual,” says P.R. Kalyanaraman, Executive Director, Federal Bank. "We are no match to the public sector banks, but the housing loan profile of the bank is quite comfortable."

The prevailing uncertainty has left the middle-income and salaried groups the most worried. The banks are worried about giving long-term loans.

“We have different slabs for people availing themselves of different loans. Poorer sections get the benefit of a lower interest rate and a higher interest rate is charged on bigger loans. Besides all the parameters, the bank’s relationship with the customer gets much importance in sanctioning a loan,” Mr. Kalyanaraman says. The third quarter of 2008-09 shows a decline in housing loans compared to the earlier two quarters of Federal Bank’s performance.

Credit history                                                                             

For all banks, credit history is important to evaluate an applicant’s record in repayment.                 

Salary determines the repayment capacity to a large extent.

An official of the private sector South Indian Bank says the evaluation has become stricter and generally, the margin stipulations of loans have gone up. All banks are following this, whether private or nationalized. "We believe that the housing loan profiles have come down because of lesser demands," he says.

This has come down by 15 per cent in the first nine months of this financial year from the corresponding period in the previous fiscal in the case of a nationalized bank with a strong housing loan portfolio. The cautious approach of nationalized banks may be the reason, says a senior manager of the bank. “We had never stopped giving loans; it is the demand that had come down,” he says.

Even at the time when other banks were lending at an interest rate of 11.5 per cent, this bank, with a strong presence in the Malabar region, was lending at 10.25 per cent.

But the senior official of State Bank of Travancore says the bank continues to sanction housing loans as usual for borrowings between Rs.5 lakh and Rs.20 lakh. There may be a change in the higher slab, he adds.

An interesting aspect is the rise in repayment of the loans taken by non-resident Indians, says the official.

The banks feel that it may take six to eight months to get a clearer picture of how the financial crisis is going to tell on the housing demands of the people.

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