Poor home buyer’s sentiments despite a dip in the home loan interest rates have led to a sharp decline in home loan growth, reports
According to the Centre for Monitoring Indian Economy (CMIE), home loan growth in April-October fell down by 32.7 percent from a year ago, one of the biggest declines in the last five years. In 2016, home loan growth was down 4.27 percent, while in 2015, it was up 26.89 percent.
Over the past two years, the interest rate on home loans has come down by 150-200 basis points, said the report. A basis point is one-hundredth of a percentage point.
Major financial institutions have lowered their interest rates. In early November, the State Bank of India announced its plans to offer the cheapest home loans by implementing a five-basis point reduction in margin cost based lending rate (MCLR rates). The country’s largest lender bought down the rate to 8.30 percent.
Many developers believe that weak consumer sentiment stems from the impact of three major events or reforms made by the government to either improve India’s economic growth, fight black money and or simplify tax.
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“Three events have slowed down the real estate market in the last one year. First, it was demonetisation, then because of RERA, new launches came down dramatically. Third, GST has increased the cost. All these have brought down the sentiment and as a result, sales have been slow,” said Anuj Puri, chairman, Anarock Property Consultants, a real estate advisory firm.
A slow implementation of the new Real Estate (Regulation and Development) Act 2016, which came into effect from May 1 this year, compiled with uncertainty over the impact of Good and Services Tax (GST) on home prices have pulled down consumer sentiment in the last one year, a real estate consultants and developers told the paper.
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The first few months of FY18 had also recorded lingering effects of demonetisation, which was announced on November 8 last year, that impacted the overall market both at the supply and demand ends, said the report.
After demonetisation, home sales dipped by 41 percent in the October to December period last year across eight major cities as compared to the same period the previous year, while launches fell an even sharper by 61 percent, as per data from property consultant firm Knight Frank.
The sales started picking up by the first quarter of this financial year. Homes sales grew by 6 percent in the June quarter over the preceding three months, according to Liases Foras, another property advisory firm.
“The first six months of the year were slow. However, we are seeing a huge pick-up since September. We have seeing a great comeback and the numbers will improve as we go into the next year,” Boman Irani, Vice President, Confederation of Real Estate Developers Association of India (Credai), told the paper.
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Under the GST regime, the tax levied on the buying of under-construction properties increased to 12 percent as against the earlier rate of around 5.5 percent (including value-added tax and service tax).
“Consumers will take time to get used to the new (tax) rates due to GST. They will take time to sink in…There is a temporary blip. I think from next financial year it should get better,” Ashutosh Khajuria, Executive Director, Federal Bank, told the paper.
Irani added that the confusion over RERA has settled down in Maharashtra and this will help improve consumer sentiment by next year.
“Real estate market has been down even before RERA came in… Demand for affordable housing is there but the pickup is slow. People may have applied for some of the affordable housing schemes and are still waiting,” Pritesh Bumb, an analyst at a Mumbai-based brokerage firm Prabhudas Lilladher, told the paper.