Housing Upswing

The real estate sector has seen an upswing over the last three quarters,mirroring the countrys economic growth....

The real estate sector has seen an upswing over the last three quarters,mirroring the countrys economic growth. Despite property prices rising sharply over this period,there has been a revival in demand due to increased affordability brought about by banks offering lower loan interest rates. Also,with the revised paper on Direct Tax Code in June,the government has proposed retaining income tax exemption for up to Rs 1.5 lakh paid as interest on housing loans in a year. With a better economic outlook and lower rates,demand for housing is likely to be on the upswing in coming quarters.

Loan rate negotiation

Home loan disbursements have picked up with interest rates being kept under check. The Reserve Bank has also been taking steps to ensure the sectors revival. The regulator had declared that current customers be offered an alternative between continuing with their old loan rates or move to new rates decided by the base rate system. This has empowered old borrowers who can now negotiate for lower rates with the base rate system coming into force from July 1. However it is too early to determine the percentage of existing borrowers who might opt for a change. According to ICICI Bank,interest liability of existing home loan customers will not be impacted unless they voluntarily shift to the new system. The final lending rate will not change drastically,the bank says.

The government is also looking at changes in prepayment rules to enable a customer to shift to cheaper lenders if his bank raises rates soon after disbursing the loan. Though it hasnt been finalised,banks would have to provide a two-month window to new borrowers where they could shift to other banks without prepayment penalty.

On the flip side,banks have become more cautious with lending. Earlier,banks used to finance nearly 80-85 per cent of the transacted value. Now only 70-75 per cent of the total property value is financed. Further,lenders pick the lower value of these two the market valuation done by bank or the transacted value.

NCR: Launches galore

After a slowdown in launches in 2009,the Noida-Greater Noida region saw the launch of a number of new projects in Q1 of 2010. Over 50,000 apartments are planned to come into the market over 2010-12. With demand being as high as it is,the FSI in Noida was increased to 2.5 for group housing projects from 1.5-1.75 earlier.

With an increase in affordable housing projects,Noida saw a higher demand of 4,400 units in Q1 of FY10 compared with 3,000 units in Q4 of FY09. In Gurgaon,while units sold per month were lower on a year-on-year basis,there was a pick-up of 15 per cent to 1,900 units sold in March on a sequential basis. Any price hike is expected to be capped at about 5-15 per cent as there is adequate supply.

Mumbai: TDR blues

In the countrys financial capital,prices of new constructions have risen sharply. The Bombay High Court had early last month set aside the state governments order to increase floor space index FSI in Mumbais suburbs to 1.33 from 1. FSI refers to the constructable area on a plot. An FSI of 1 means that the area of construction should be equal to the area of the plot that means a plot of 1,000 sq ft can only have a built-up area of 1,000 sq ft and no more.

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In 2008,the state allowed additional construction rights by hiking FSI in Mumbais suburbs from 1 to 1.33. This meant that every building in the suburbs was eligible for additional construction rights up to 0.33 FSI without needing to purchase TDR. This was,however,quashed by the High Courts June ruling.

Launched in 1991,the TDR policy allows owners of plots were reserved for markets,gardens or widening of roads to surrender their land to the Brihanmumbai Municipal Corporation in exchange for an equivalent space in the suburbs. In return,the owners are allowed proportionate TDR rights that can they themselves can utilise or sell to developers. The High Courts judgment has now lead to an increase in TDR prices by around 20 per cent,thereby increasing the cost of development for builders.

Blore: Prices stabilising

The residential market in the countrys fastest growing major metropolis has seen some significant action. It has been helped by the pick up in hiring in the IT/ITES sector,which accounts for about 50-70 per cent of demand in the citys property space. Property prices have also begin stabilising. Residential sales have been driven by the improvement in sentiment with increase in salaries and job security. With buyers being price-conscious,the mid-segment has seen a slew of new project launches.

Kolkata: Suburban migration

Kolkatas real estate market is buzzing with activity as the middle class in this eastern metro begins migrating to the suburbs in search of affordable housing. Development in the industrial sector,coupled with the boom in IT,has led to significant growth in the citys real estate and also a rise in cost. Tata Housing has increased prices of residential units at Eden Court,the companys first housing project in West Bengal,for the second time in recent months. From Rs 2,750 per sq ft since the projects inception,the price has now touched Rs 2,900 per sq ft. With few ready-to-occupy flats available,price hikes have happened due to imbalance in supply and demand. l

The writer is CEO,BankBazaar.com