SBI announces cheaper home loans

After the Reserve Bank of India prescribed new system to improve transmission of monetary policy that is Instead of one benchmark rate, banks would indicate at least five benchmark rates varying according to tenures called Marginal Cost of funds based Lending Rates (MCLR), home loans  from the country’s largest lender, State Bank of India are set to be cheaper by 10 basis points.

Under the Marginal Cost of Funds based lending Rate (MCLR) regime, banks would quote rate starting with a rate for overnight tenor, one month, three month, six months and one year buckets. Banks can give more rates if they wish.

SBI’s benchmark rate would range between 8.85% (for overnight) to 9.35% (for three years).

Presently, SBI offers home loan at 9.55% (base rate of 9.3% plus 25 basis point premium for home loan). Under revised guidelines, it could be with MCLR for one year – 9.2% plus 25 basis point premium makes it 9.45 basis points for home loans sanctioned from April one. “Their would be savings of Rs 600 in Equated Monthly Installment (EMI) on one year loan,” said Anshula Kant, the Chief financial Officer & Deputy Managing Director, SBI.

Housing Price Growth in Mumbai

For the duration of July to September or in Q3 2015, the housing price index grow by 13.7 percent, whereas; the cities such as; Jaipur, Lucknow and Kolkata have contributed to the slower pace of growth, as per data and reports of RBI.

As per data of Reserve Bank of India, till the end of July – September quarter home prices have not bottomed out. Indian Housing Price Index is the barometer for home prices in Indian real estate market and it released by the central bank. For years 2015, the Indian Housing Price Index has grown by 13.7 percent for the period of three months, which ended on September 2015, however; in last quarter it was 14.5 percent for the same financial year. On the other side it was city Kolkata, which has witnessed maximum fall in Indian Housing Price Index with 224.1 in the second quarter of 2015-16 and it was 3.13 percent less than the previous quarter. But New Delhi, the capital city of country have cheered the real estate developers because in Delhi real estate developers were offering freebies such as; free parking space, air tickets, cars, heavy discounts and more including latest gadgets. For the same period the Housing Price Index growth was about 21.9 percent in Delhi and it was maximum in whole country.

Overall increase in Indian Housing Price Index was 219.5 in the second quarter, however; in first quarter of 2015 it was 215.3 and this increase was due to the metro cities such as; Delhi, Ahmedabad and Chennai, as per press release of RBI. Whereas; in Q2 2015, the Housing Price Index for Bengaluru, Kolkata and Kochi decreased from the previous quarter. To give more curate data the Reserve Bank of India compiles quarterly house price index of top ten major cities such as; Mumbai, Bengaluru, Lucknow, Delhi, Chennai, Ahmedabad, Jaipur, Kolkata, Kanpur and Kochi.

Dubai real estate investment

According to Dubai government’s data, Indians were the most prolific foreign investors in the first six months of 2015, with a total of 3,017 real estate transactions worth more than $2 billion.

“The typical Indian mind-set of solidifying assets in multiple arenas compliments the dynamics of Dubai real estate which offers a range of options to buyers as per their budget and preferences. Recent trends of purchasing properties in locations such as Downtown Dubai, Dubai Marina, Jumeirah Lake Towers and The Palm also suggest that the buyers are looking at profitable dividends in the shape of rents and resale value,” said Sunil Jaiswal, President, Sumansa Exhibitions. The company had organized Dubai Property expo in India from November 6-8. lower rates of property in Dubai in comparison to some metropolitan cities in India, interest in exploring foreign markets for a balanced real estate investment portfolio and the latest move by the Reserve Bank of India  permitting investors to send up to $2,50,000 freely overseas to buy property has positively impacted investor sentiment.

“hassle-free commuting to Dubai for both business and recreational requirements is one of the reasons why purchasing property there is convenient. Moreover, there is no tax on rental income; investors can make free and clear profit on rents also draws Indians to Dubai’s realty market,” Jaiswal added.

Indiabulls Housing Finance

OakNorth, which is a London lender now aims to challenge the dominance of other large global finance companies such as; HSBC, Barclays, Lloyds and Royal Bank of Scotland in India.  Now India is prime destination for investors and it is emerging in as the world’s largest financial centre. Indiabulls Housing Finance, one of the Indian corporate houses is ready to acquire a large stake in a London based foreign bank, OakNorth. According to sources, Indiabulls Housing Finance is buying 39.8 per cent stake in UK’s OakNorth Bank for $ 100 million.

Sameer Ghelot, Chairman of Indianbulls group is also planning to acquire 10 per cent stake in the same bank through his personal capital with same valuation. This deal is one of the largest deal among several other Indo-British deals and it is expected that deal will be signed on Thursday when PM Narendra Modi will meet the British PM David Cameron in London. The National Housing Bank (of India), the Reserve Bank of India and Prudential Regulation Authority of the Bank of England have approved this investment. First time in history these regulatory approval authorities are ready to approve such a big stake to any Indian corporate into a foreign bank, as per company statement. After this deal Indiabulls group will be the largest shareholder in the OakNorth Bank. However; still company has an option to increase its stake in the bank in near future, as per company sources.

About OakNorth Bank:

OakNorth Bank is London based largest non-bank lender active in SME segment with outstanding SME loan assets of over $2.3 billion and loan disbursals to these companies at over $5 billion, as per company sources. In UK, OakNorth Bank is focusing on the structurally under-served SME sector and now at this point of time Indiabulls with a decade-plus experience in lending at same sector in India is ready to take benefit from resources and market skills of OakNorth Bank as Indiabulls has an extensive credit processes based on cash flows. However; on the same time OakNorth Bank will also take benefit from Indiabulls’ experience as it is one of the largest lender in small business, especially with its LAP (Loan Against Property) products.

In 2013, Rishi Khosla a former adviser of India-born steel magnet Lakshmi Mittal was put the foundation of OakNorth Bank. During the phase of set up, OakNorth Bank had secured an investment and funding from a former member of Bank of England’s monetary policy committee. However; in present a former chairman of Financial Services Authority of the UK is on its board of directors. On the deal, Gehlot stated that with this investment, Indiabulls group total exposure in London will become shinier with excess of Rs 4,200 crores. Apart from this deal group’s real estate arm is engage in redeveloping the four projects in London, which is worth of total Rs 3,500 crore.

From the side of Indiabulls, this investment decision was led by a former deputy governor of RBI, MR. K C Chakrabarty as currently he is acting as an independent director on the Indiabulls board now.

Property-festival-offers

Despite real estate developers trying all kinds of marketing gimmicks like funding schemes with upfront payment as low as 5 percent of home price, interest waiver for 2-3 years and freebies, sale velocity has not picked up. The residential property market has been deserted- by investors due to slow moving market with stagnant or dipping prices and by end users because of unaffordable prices.

Even the unexpected 50 basis point repo rate cut by the Reserve Bank of India (RBI) may not see a significant improvement in demand in the festival season. Earlier, only a part of the multiple rate cuts amounting to 75 basis points effected this year before September 29, was passed on to the consumers by the banks.

However, within a week of the announcement by RBI, the hopes of real estate developers and home buyers seem to have been shattered as the banks have still not transmitted the cut to the borrowers.

The State Bank of India (SBI), which earlier announced a 40 basis points cut in its base rate, has now revised its decision by reducing the base rate cut by 50 percent to protect its margins.

Even more confusing is the SBI’s new policy to offer home loans at 20 basis points higher than the base rate to women and 25 basis points higher than the base rate to men in contrast to its earlier policy of offering home loans to women at base rate and to men at five basis points above base rate.

Although other banks had also announced 20-30 basis points cut in their base rates, home loan rates are still hovering well over nine percent. The inability of the banks to transmit the RBI rate cut to home buyers is sending negative signals across the market.

The extraordinarily high inventory and muted sales call for price rationalisation. RBI Governor Raghuram Rajan had also asked developers to cut prices to spur sales. Even Credai chairman Irfan Razack, advised developers to offload high inventory by rationalising prices. Developers however, are holding on to prices as steep rise in input costs and high cost of loan servicing lowers their margins to a great extent.

Domestic home buyers who form the bulk of customers, are therefore not enthused enough to jump in the fray. They are waiting for prices to fall and in the backdrop of interest rate dampner; it looks unlikely that this festive season will turn out to be a Savior for both developers and home buyers.

Real estate investment

In present location issue is keeping the buyers away; but better ROI, an incentive, benefits of tax breaks are still attracting the investors as well as end users towards the real estate market. In India, affordable segment are finding buyers but most are investors not those who are planning to stay in those homes because of the location issue as the home is located too far away from offices and have little support infrastructure, analysts and trade experts said. Peoples are making the attempt to invest in real estate sector because government have increase the accessibility of housing through tax breaks and other incentives or benefits, which are therefore going towards those more interested in turning a profit.

Almost 50 per cent of the total housing stock of 293 million sq. ft sold in the last fiscal year, which was ended on March 2014 and the prices of those property was less than Rs.50 lakh, as per the data of real estate research firm Liases Foras. Flats which cost Rs.25-50 lakh accounted for 37 per cent of the total housing stock sold in the same period, while those below Rs.25 lakh had a 13 per cent share. Mumbai is the city which known for its high property prices as well as ROI, accounted for 13 per cent of the sale of houses priced below Rs.25 lakh and 28 per cent of houses in the Rs.25-50 lakh range. According to Pankaj Kapoor, The Managing Director of Liases Foras, “Most new launches in the last three quarters are in the affordable category”. The more he added that the rise in sales in part to state government regulations which have been favorable for both real estate developers and buyers in the relatively more affordable segment.

In December 2014, the Apex Bank (Reserve Bank of India) allowed real estate developers and housing finance companies to raise up-to $1 billion through external commercial borrowings to promote housing projects, which also referred to as low-cost because they are cheaper than more upscale properties. The budget of 2013, proposed a Rs.2.5 lakh deduction on the total taxable income on home loans of less than Rs.25 lakh, applicable to loans from banks and non-banking financial companies (NBFCs). Such housing projects are profitable business for real estate developers as in Mumbai, they provides an internal rate of return (IRR) of 45 per cent with gross margin of 24 per cent. According to report of Monitor Deloitte in 2010, a consulting firm, “Most of the flats are being bought by investors rather than genuine low-income end-users despite the low prices and interest rates, since these flats are being built in far-flung places with poor connectivity and social infrastructure, real estate and analysts”.

For example, If person buys such a home in Karjat, which is one of the last stops on Mumbai’s suburban Central line,  will have to travel about 85 km if his/her office is in the central business district of Nariman Point. That’s about two hours by train each way. According to Kapoor, “Trans Harbour Link have easy connectivity between the the mainland and the island city and provided a much-needed boost for affordable housing”. The Trans Harbour Link have 22 km road across the sea which will connect the island city and Navi Mumbai. It is expected that, Trans Harbour Link will be operational by 2018-19. Now investors are looking to it as excellent opportunity as it has connectivity and support of infrastructure. According to Om Ahuja, the chief executive, “Most projects are not affordable in terms of living and these projects are bought by investors who park their money. If it is a wrong product, their investment gets stuck”.

According to Brotin Banerjee, MD and CEO of  Tata Housing, “Tata Housing sells these homes under two different national banners; Shubh Griha (Rs.4-13 lakh) and New Haven (Rs.25-40 lakh). It plans to launch more affordable projects across different consumer segments in Mumbai, Bangalore, Gurgaon, Bhubaneswar and Kolkata.” VBHC (Value and Budget Housing Corp.), has many affordable housing projects, which are in Delhi, Chennai, Mumbai and two in Bangalore. It’s planning to launch one more in Delhi and Mumbai in the next few months, according to Vivin Mathew, chief executive, western region. On March 2014, GPL (Mumbai-based Godrej Properties Ltd), the realty arm of the Godrej group, launched an affordable housing scheme at its Godrej Garden City township project in Ahmedabad. In real estate market some of the real estate developers are using finance and marketing techniques to attract genuine home buyers or investors in the Rs.6-25 lakh range.

Poddar Developers Ltd, a Mumbai based real estate developer has 25 per cent of the apartments in one of its project to families availing loans from NBFCs such as Gruh Finance Ltd, Mahindra and Mahindra Financial Services Ltd and Muthoot Fincorp Ltd. NBFCs offer rates that are slightly higher than that of commercial banks, but have an easier documentation process, making it a better option for low-income borrowers. According to Rohit Poddar, MD of Poddar Developers Ltd., “We don’t sell more than one flat to a single buyer. We have a 75:25 mix of actual home buyers and investors”. In last two years, Poddar Developers has sold more than 2,500 apartments in Badlapur in Thane district and Karjat in Raigad district, in the range of Rs.3.5-12 lakh each. Recently they have launched the similar project at Atgaon in Thane and is planning 40,000 sq. ft of land by the end of this financial year.

According to Rashmi Housing Pvt. Ltd, “It’s also giving a loan to home buyers without interest to drum up interest in homes that cost below Rs.25 lakh. According to Yogesh Bosmiya, Director of Rashmi Housing, “Around 30 per cent of our home buyers or invetors they are availing this loan facility and we are mostly getting the end users”. Rashmi Housing Pvt. Ltd, said that they has sold more than 3,000 units in the Mira-Bhayander area of  Thane district since 1999 and is developing another 4,000 units in the same area. Bosmiya said the profit margin is 20-25 per cent. Whereas; some of the real estate developers are constructing the hospitals and schools to improve the existing public schools, to create social infrastructure in a bid to attract families.

Invest in ATM to generate income

Investment in commercial real estate is more lucrative investment than investment in residential property because of much higher rate of return. Apart from doing a job, running your own business or renting the space to other business is good option but now you can also consider another option ie. Renting the commercial space to for setting up an Automated Teller Machine (ATM).

According to RBI, there is need for more ATMs in the country to address the issues of financial inclusion. Recently RBI has allowed seven NBFCs (non-banking financial companies) to open white-label ATMs. ATMS, which is owned and operated by an NBFC is known as; white-label ATM, while most of the white-label ATMs are to be set up in rural areas with a small percentage to be installed in urban and semi-urban areas. Vakarangee is about to manage and set-up a minimum of 15,000 white-label ATMs in next three years with the ration of rural-to-urban as 2:1. The TCPSL (Tata Communications Payment Solutions) will set up almost 5,000 of the mandated 15,000 ATMs in metros and urban markets. When it comes on semi-urban and urban locations, than there are basically two ways in which you can use your commercial to earn additional income via the white-label ATM route.

Rent out your commercial space for white-label ATMs:

If you have commercial space so you can rent out the same to white-label ATM provider, in which Prism Payment Solutions is one. Prism Payment Solutions deploys ATMs at most popular areas with good visibility across the country. Another investment option is to rent out a commercial space while you continue to use it for your own business. Payments Solutions is ATM-in-a shop concept, it set-up the ATM in existing businesses premises, such as; shopping centers, standalone shops, retail chains and businesses in urban locations such as; Hyderabad, Mumbai, Chennai, Bangalore and more. You will get the rent from NBFCs, which will depend on the factors such as; city and location of the ATMs.

How much investment it needs:

If you are offering the commercial space for the ATM, so you should know that it will be not installed in free. For whole process you need to shell out a security deposit of Rs 2 to 3 lakh or it can depand on the space, location and the number of ATMs you plan to install. As ATM is owned by the company, so you need to pay the security deposit, which can be equivalent to few months rent. The fixed monthly rent which you will get can range from Rs 25,000 to 30,000.

Franchise ATM:

If you own a lobby space of 20 sq ft or at least a room of 50 sq ft, so you can take the franchise of Indicash TATA ATM. TCPSL, take care the operations and repairs of Indicash, and company will also bear the electricity charges and install the required electronic security equipment.. As ATM franchise is another way to leverage the commercial space so TCPSL launched the this model with the collaboration of Franchise India. People can invest money in an ATM franchise and earn a return on their investment.

ROI:

A franchise will earn Rs 5 for nonfinancial transactions and Rs 15 for every cash withdrawal. The return on investment depends on location and return is calculated directly on the basis of the volume of transactions. Any ATM starts making money when it clocks 100 transactions per day.

Rent, Earnings and Franchise:

If you want to rent out your commercial space, so there is an opportunity to earn Rs 25,000 per month from the NBFC, which installs the teller machine. And if you have decide to take a franchise than there will be no rental income, but you will also bear the maintenance cost.

In franchise scheme, if, over a period of time your ATM sees 200 transactions a day, of which 40 are non-financial transactions and 160, are withdrawals, so you will earn a total of Rs 2,600. Even after deducting your costs, you could earn around Rs 53,000 (Rs 78,000—25,000) a month. Hence your income depends on the transactions that your ATM receives and it is the element of risk. So, it is recommended to weigh your options before deciding on the route that suits you.

Housing prices to come down

There is enough scope for housing prices to come down from the current highs because there is a huge pile-up of inventory, Reserve Bank of India Deputy Governor SS Mundra said on Wednesday.

Of the total housing shortage of 18.78 million in urban India, the shortage in the economically weaker sections and lower income group categories was 10.55 million and 7.41 million, respectively, according to the report of the Government’s technical group on urban housing shortage.

Stating that the cost of houses is still very high, Mundra said improving the affordability of houses is important in a country where more than 60 per cent of the population lives on less than $2 a day.

Referring to the counter-argument that taxes account for 22 per cent of the housing cost, the Deputy Governor said, “More progressive construction technologies and several other measures can make it possible to make houses less costly than what they are today.” Mundra’s comments come in the backdrop of the huge housing shortage in urban India, which was estimated at 18.78 million in 2012 and is expected to touch 30 million by 2022.

Regarding the demand from individuals for second and third houses, Mundra observed that at this stage of the country’s economic development, bank credit is needed more for creation of productive assets.

“We would not like to create a situation whereby there is artificial demand in the housing sector, he said at a conclave organised by the National Real Estate Development Council. Mundra said given the relatively better asset quality in the housing and real estate sectors, banks have a natural incentive to keep on lending to these segments. On the common refrain that commercial banks have stopped lending to the housing and real estate segments in the last four-five years, the Deputy Governor said, “Our review of the extent of loans to these as a whole gives little contrary picture, indicating that loan growth in these segments has been quiet robust.”Further, the asset quality in these segments is also relatively better.

The Reserve Bank of India (RBI) has called upon banks to bring in more financial innovation into home loan products by linking such loans to deposits. According to R Gandhi, Deputy Governor, RBI, “Savings can be induced to generate savings balance by way of monthly or periodic deposits. This will serve as a track record for future home loan products and once it reaches a certain balance, the financial institution can consider sanctioning the home loan with the balance in the account acting as collateral.”

Gandhi said the RBI will also periodically review the definition of affordable housing, taking inflation into account. Further, he mentioned the need to internalise the credit risk originating in the housing sector, particularly the low-ticket housing segment, through proper insurance schemes for banks and other institutions.

Gandhi asked various stakeholders to ensure timely completion and delivery of projects without escalating the costs. In addition, he highlighted the need to develop an elaborate system for collecting data on real estate and housing activity to facilitate informed policy decisions.

Amid demands from the real estate industry with regard to funding from banks, Gandhi also asked them to moderate their expectations as banks are ultimately the trustees of public money and it needs to be used efficiently for all sectors. On differential licensing, Gandhi said the central bank intends to issue the final guidelines during this financial year after analysing comments and suggestions invited from various stakeholders. Asked if state-owned India Post will apply for a banking licence, he said the Government has to give its approval and only then can it apply to the RBI.

Property prices to be stable in Mumbai

Stable price scenario can be expected for property prices in Mumbai in the foreseeable future due to the high price points. However, Bangalore, Chennai, Pune, and Kolkata may see marginal appreciation due to increased demand.

In second quarter the union government had announced friendly measures in the 2014-15 budget for real estate sector. With the general improvement in overall sentiment and optimistic announcements for real estate BSE Sensex and the realty index showed upward trends.

What is termed as a positive move, the Reserve Bank of India (RBI) allowed banks to issue long-term bonds with a minimum maturity of seven years to raise funds for lending to long term infrastructure and affordable housing projects. Home loans up to INR50 lakhs (INR5 million) for houses costing up to INR65 lakhs (INR6.5 million) located in the six metropolitan centres and INR40 lakhs (INR4 million) for houses costing INR50 lakhs (INR5 million) in other cities are eligible for home loan under this scheme.

A rise in transaction volumes was witnessed in cities such as Bangalore, Chennai and Pune and a number of projects were launched. In cities such NCR, Mumbai and Kolkata, there was an increase in enquiries for residential properties but transaction volumes remained stable and developers continued to promote their unsold stock by offering innovative payment plans. “We anticipate a stable price scenario in cities such as Mumbai and NCR due to the high price points. However, Bangalore, Chennai, Pune, and Kolkata may see marginal appreciation due to increased demand. Most of these cities may witness the launch of affordable projects in the coming quarter as a number of developers are planning to launch affordable housing projects in line with the government agenda focusing on this type of housing.