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Tuesday, October 26, 2010
Tuesday, October 12, 2010
Black in realty to dip as circle rates doubled
NEW DELHI: The white money component of property deals is set to rise with the Delhi cabinet on Tuesday doubling circle rates across all eight categories of colonies. The rates now range between Rs 86,000 per square metre in category A, including Greater Kailash and New Friends Colony, and Rs 13,800 per sq m in the rural villages. The new rates will come into effect once the notification is issued and the revenue department expects a surge of registrations in that window, in order to bypass the hike. In her post-cabinet briefing, chief minister Sheila Dikshit said the decision was aimed at reducing the circulation of black money and to ensure that the government did not lose out on revenue, given the rampant undervaluation of properties. This is the first increase in circle rates since its introduction in 2007. With the 100% hike, the complicated and time-consuming exercise undertaken by the revenue department to assign individual circle rates for all 2,480 colonies has been put on the backburner, thanks largely to revenue minister Rajkumar Chauhan's insistence that his colony, Behra Enclave, be rated no less than adjacent Guru Hari Kishen Nagar and Meera Bagh which, he argued, were low on infrastructure. In the list drawn up by the department, Behra Enclave was categorized at Rs 43,000 per sq m, while the other two were tagged at Rs 86,000 per sq m. Chauhan's opposition forced a revision of the entire list, even after the cabinet had given its approval on June 14. By conservative estimates, that exercise cost the exchequer Rs 120 crore in the four months that the proposal hung fire. The cabinet meeting on Tuesday morning was the third in 24 hours to decide on the issue, which till the last minute saw both the revenue department and the minister pushing for individual rates for the colonies, sources said. The cabinet was initially amenable to the idea and had, in fact, decided to invite public comments to preclude other complaints of discrimination. The delay in setting about that process, however, forced the government to change its mind. ''The chief minister had been pushing for a hike and it was largely at her instance that the separate rate chart was not adopted. We wil look at it again when the time for another revision comes," said a source.
Monday, October 11, 2010
CHEAP HOME LOANS THE NEXT BIG ISSUE?
Recently, the banking ombudsman in Delhi ruled in favour of two home loan borrowers against a bank. Both claimed that they had not received the benefit of a floating rate loan they had taken and had been paying high interest rates even when new borrowers were being charged less. Also, when they wanted to prepay their loans, the bank did not allow them to do so without a prepayment penalty. The ombudsman has directed the bank to waive the penalty if they choose to prepay their loans or give them the benefit of a lower interest rate being offered to new borrowers.
Many more cases related to alleged unfair trade practices adopted by banks in the mortgage market have been pending before banking ombudsmen across the country. Even the Competition Commission of India is looking closely at this issue. The objective of the commission is to promote competition in markets; prevent practices that have adverse effect on competition; and protect the interests of consumers. The commission feels that there is cartelization among banks to deny benefits to home loan customers. Banks, on their part, are strongly defending their stance. The two customer complaints in Delhi against one particular bank have the potential to snowball into a major issue for the Indian mortgage market, involving millions of consumers.
There is no clarity on the exact size of the market as banks do not give the home loan disbursement figures separately in their balance sheets. They are clubbed with other retail loans. According to sector analysts, Housing Development and Finance Corp. Ltd (HDFC), India’s oldest mortgage lender, roughly accounts for 30% of the market. If that’s indeed true, the market will grow by about Rs.1.4 trillion this year and add at least 600,000 customers as HDFC’s retail home loan book is expected to grow by Rs.42,000 crore in fiscal 2010, disbursed among 185,000 consumers.
HDFC, State Bank of India, ICICI Bank Ltd, LIC Housing Finance Ltd and Axis Bank Ltd account for about 80% of the market that has been growing at a compound annual growth rate of 25% in past five years. India has a housing shortage of 24.7 million units and at about 7% of the country’s gross domestic product, the mortgage market will continue to grow at a scorching pace for many years.
There are two types of home loans—fixed- and floating-rate loans. Typically, the fixed-rate loans cost much higher than the floating-rate loans and the difference between the two could be as much as 4 percentage points. This is because the average tenure of a home loan is about 15 years and as banks do not have long-term resources, they are taking an interest rate risk while lending long. A floating rate loan, in contrast, costs less as here the price of the loan is theoretically linked to a benchmark rate, which changes in accordance with the cost of borrowing. So, when the benchmark rate goes down, the cost of a floating-rate home loan should decline and vice versa. Big-ticket home loan borrowers often split their loans into two and borrow both at fixed and floating rates to hedge against interest rate risk.
A borrower takes a fixed-rate loan when she feels that interest rates will go up. By locking herself into a fixed-rate loan, she insulates herself from interest rate risk. In case the interest rate declines, she loses the benefit and may like to prepay the loan. In this case, banks are justified to impose a prepayment penalty.
But why would a floating-rate customer want to prepay her loan? After all, isn’t the loan rate linked to a benchmark rate that changes when the market rates change? Theoretically she can never be a loser, but the reality is different. Many floating rate customers, too, want to prepay their loans because they are not getting the benefit when banks lower their home loan rates. This is because Indian banks and housing finance firm are offering lower interest rates to new home loan seekers under various schemes without changing the benchmark rate.
Unlike in developed markets, where floating-rate loans are linked to the London inter-bank offered rate, or Libor, in India there is no external benchmark for interest rates. Banks have their own benchmark rates that are often opaque. They are always fast to act when rates go up and slow in passing the benefit to their customers when the rates go down. This is an old practice.
What is hurting the consumer more is the industry’s innovation of various schemes to offer low interest rates to attract new home buyers. Often consumer appliances makers create such schemes to clear their inventories of microwaves, television sets and refrigerators, but buyers of white goods make one-time payments while home loans are serviced over many years. New home loans are not inventory clearance and banks can only give them at cheap rates if their cost of funds justifies it. In that case, why shouldn’t the existing borrowers, too, get the benefit of lower borrowing costs? If they are denied such benefits they should at least be allowed to prepay their loans without any penalty as this will enable an existing customer of one bank to refinance the loan by taking a fresh loan from another bank at a cheaper rate.
If banks don’t want to do this, citing the cost of funds, the model is terribly faulty. Discrimination against one set of borrowers is only one side of the story. Banks are running huge risks by offering home loans at a rate cheaper than inflation. Aggression to garner market share is fine as long as it doesn’t affect asset-liability management.
www.livemint.com On Mon, Oct 11 2010
Why India is a Hub of Profitable Real Estate Investment?
According to a latest report of FCCI and Ernst and Young in the list of top nine attractive destinations for real estate investments, India is ranked as the fifth most attractive destination for future real estate investments. In this list China is on top spot, USA is on second followed by England and Singapore. Because of good economy development and improved real estate market index, India gain fifth spot as most attractive destination. On the other hand China remains attractive as an investment destination primarily due to its impressive economic growth record and favorable demographics. If government of India allows real estate investment trust (REIT) and real estate mutual funds (REMF), India can overtake the Chinese attractiveness in real estate. Lack of source of finance in India is also one of the reason for making Indian real estate investment less attractive than other. So that government should promote some alternative source of funding this will be helpful in getting good response. This is all about the Indian real estate position in the world and now I am going to explain you why Indian real estate property can be more profitable in future. In India the price of houses are going to rise high because India will face shortage of over 26 million houses by 2012 and that’s why demand of houses will be more as compare to the supply. “With India back on a high growth trajectory, demand for commercial and residential space is likely to witness an upward trend,” consultancy firm Ernst and Young said in a report. Because of growing young working population, increasing urbanization, declining household size and improved availability of loans demand for residential property going to rise more high in future. In India $1.2 trillion investment was needed to meet the rising demand for urban development said Co-chairman of FICCI Real Estate Committee Pranay Vakil. He said that the urban population in India would nearly double to 600 million in the next 15 years from nearly 350 million now, and this would put massive pressure on urban infrastructure, including roads, power and water supply. Dean Hodcroft, partner-head of real estate for Europe, Middle East, India and Africa at Ernst and Young, said India needed institutional reforms to attract more investments in infrastructure development projects...
India May Allow Overseas Individuals To Buy Stocks Directly
Finance Ministry is planning to allow overseas individuals to directly buy stocks in India for the first time ever, easing the current rule that restricts investment to mutual funds. This move would allow foreign individual investors to access the market directly rather than through the institutional route. Also, this could be favourable for local equities and will broaden the pool of funds they can access to expand business. Currently, only non-resident Indians (NRIs) are allowed to invest in mutual fund schemes, while foreign retail investors participate in Indian equities through sub-accounts of foreign institutional investors (FIIs). However, the government may fix a cap on the amount foreign retail individuals can invest. Finance minister Pranab Mukherjee has said that there is no need for the government to restrict FII’s and foreign direct investment as the India Rupee grew to a two-year high raising concerns that the country will restrict capital to check currency gains. Since FIIs were allowed into India in 1993, till date they have invested $92 Bn into local stocks. The mutual fund industry expects more inflows as the Indian stocks have good appetite for foreign funds. FIIs have invested more than $21 Bn into the market this year. According to Milind Barve, MD of HDFC Mutual Fund, “This move is welcome but it will be difficult to market the MF schemes in foreign countries as the companies will have to be registered and should comply with the local regulations.”
Saturday, October 9, 2010
RBI May Formulate Strict Norms for Banking Applicants with Exposure to Real Estate
The Reserve Bank of India (RBI) may have to go easy on its suggestion of not granting new banking licences to those groups which have exposure to the real estate sector. The central bank had in a discussion paper indicated that the groups with real estate exposure may find it difficult to obtain new banking licences. However, with most of the new applicants having exposure to the real estate sector, sources said, the RBI may not be able to disqualify them from getting new licences. In such a case, the RBI may have to formulate strict norms for new banking applicants with exposure to the real estate sector. On Thursday, three deputy governors of the RBI — Usha Thorat, Subir Gokarn and KC Chakraborty — met with top officials from the financial services sector to get their feedback on the new bank licensing norms the central bank is working on. During the two-hour discussion, “about three-fourth of the time was spent on discussing the real estate sector exposure of new applicants,” said an official who attended the meeting. Besides the issues relating to real estate exposure for banks — something that has been a cause for concern for the central bank — the other points discussed were the shareholding pattern and foreign holding in new banks, whether to convert NBFCs into banks under the new norms or to allow them to float one, and also, what should the minimum capital requirement be. During the meeting, it was pointed out that most of the corporate houses which are likely to vie for new licences from the Reserve Bank of India (RBI) also have realty companies within the group structure. For example, the Tata Group has exposure to the real estate through Tata Realty & Infrastructure. Likewise, Mahindra & Mahindra, which is trying for a banking licence through Mahindra & Mahindra Financial Services, has exposure in the realty sector through Mahindra Lifespace, Reliance Capital has Reliance Property Developers, Indiabulls Group has Indiabulls Real Estate, the Religare Group has Religare Realty and L&T has L&T Urban Infrastructure. Indiabulls had shown interest to float a bank under the new regime but has now said it would most likely stay away from full-fledged banking. On NBFCs, the RBI would most likely allow them to sponsor banks, rather than convert into banks. indianpropertyreview.com
Real Estate Riding High on Finance
Real Estate Riding High on Finance The real estate market in India is running is top gear. It has opened a world of opportunities for everyone from developers to investors. The real estate market is growing at a good pace which has further boosted the overall development of the economy. There is a stiff competition amongst the various developers in the market. All this has benefited the customers as they get better properties at competitive prices. The availability of finance for the development and purchase of properties is the key to this stupendous growth of real estate sector. The developers get huge loans for their projects and similarly buyers get mortgage loans from banks and financial institutions at attractive terms. Nowadays, the access to finance has become quite easy. The required information is also available online. You can even calculate the EMIs by using the online adjustable mortgage calculator. The finance is available for all kinds of properties including residential, commercial, and industrial. This finance facility can be availed by salaried individuals, self-employed individuals, partnerships and even NRIs depending upon the eligibility and completion of documents. The credit history of a customer is also checked before extending loan to him. Banks need to ensure that the customer is not a defaulter or does not have a bad credit report for other banking products like credit card or personal loan. Many portals have been developed on real estate which provides the complete information regarding the properties available, their advantages and the future projects. These portals not only help you in searching the property but also educate about mortgage loan options. The growth has been seen in all sectors including residential, commercial, and industrial projects. There has also been a rise in business for real estate consulting institutions, banks and finance companies in India providing the required housing loan, property valuers, and construction companies. The Indian government has also played a vital role in the growth of real estate sector. Government has made the Indian market lucrative for the NRIS and foreign developers. It has also taken initiatives to allow FDI in real estate and encourage investment by NRIs. Indian has definitely become a preferred choice for investors. The consumers are poised to get immense benefits from this growing real estate market and will get real value for their money.... Article from articlesbase.com
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