Shell out more for your dream home

Not only that,the increased provisioning requirement for banks will translate into higher interest rates and eventually higher EMIs for the customers.

The LTV ratio is the ratio of money borrowed on a property to the property8217;s fair market value. Currently,the banks do not provide 100 per cent loan but give,say,85 per cent of the cost.

The central bank8217;s move may not affect well-off buyers but will certainly impact customers who borrow in the area of Rs 20 lakh,banking sources say. While the real estate sector is up in arms against the move,banks have termed this as a wise decision.

With the tougher provisioning norms and the fixed LTV ratio,the market may see customers flocking to financing institutions not regulated by the RBI,like housing finance companies, a senior State Bank of India official said. Housing finance companies are regulated by the National Housing Bank NHB and hence do not act in accordance with RBI policy.

Banks will of course pass on the increased provisioning to the customers. The only way a customer may think of circumventing it is to borrow from housing finance companies, another official of a leading private sector bank said.

Risk provisioning is mandated by the central bank. Banks are required to keep aside some amount for the loans provided in case the loan goes bad.

Housing finance companies are now expecting a beeline of customers as they are not planning to take a cue from the RBI policy, a PNB Housing Finance official said.

In the November policy,the banking regulator increased the standard asset provisioning by commercial banks for all such loans to 2 per cent from the current 0.4 per cent on the argument that some borrowers may find it difficult to service the loans once the normal interest rate,which is higher than the rate applicable in the initial years,becomes effective.

Under teaser rate schemes,loans are offered at a comparatively lower rate of interest in the first few years,after which they are reset at higher rates.

For instance,SBI has a scheme running for teaser loans or easy home loans8217; till December 31,2010,wherein the base rate is 7.50 per cent and interest during first year has been fixed at 8 per cent per annum. During the second and third year,the interest rate is fixed at 9 per cent. After the third year,there is a floating interest rate,which is 1.75 per cent above base rate.

These teaser loans are affordable and the best and the most-sought after product in the market,especially by the customer base that has the capacity to repay the loan in a shorter time span of say,seven years,the banking sources said.

But,banks are not perturbed by the stringent norms. According to them,the concerns raised by the banking regulator are well placed but they do believe that there would be a marginal impact on the demand.

It is not as harsh as it looks. There is not likely to be a dip in demand in homes loans or homes,but yes it certainly makes it slightly tough for borderline customers8230;The RBI has sent a very strong signal that the property prices are hardening quite fast in metros. Banks currently lend 85 per cent of the property price,some banks give as much as 90 per cent and decrease their leverage. Now the RBI has said they should be prudent. They should not go overboard8230;one has to understand the limits, a Punjab and Sindh Bank official said.

In fact,sources from the Indian Bank Association supported the RBI move saying the growth of NPAs can be stemmed to some extent by this.

It is a good strategy. You have to know whether the income of the customer support the loan. This is a smart way to do it, an IBA official said.

All the same,the real estate sector is planning to take up the issue with the banking regulator and the finance ministry. Though real estate consultants think that the fall in demand is unlikely,the real estate developers think that the mood that was building among the customers to buy a house would take a hit.

It would certainly discourage customers. Entry ban is not justified,the only thing to ease off the pressure is to increase supply rather than hardening interest rate. Right now customers will just sit and watch which is not a good thing. In Noida,due to enough supply,the prices have been quite stable. So RBI move is not called for, Getambar Anand,vice president,Credai,said.

He added that the sector provides employment to roughly 300 affiliated industries including wires,nails,hardware,wood,glass and if the sector is hit,these industries would be impacted.

It is the biggest employment generator for the unemployed,unskilled sector of the country. And basically it is the mood of the customers that would be killed, Anand said.

However,Sanjay Dutt,CEO Business JLLM India,differred. He said,People who have been trying to buy first home,will still buy. Similarly,people buying a Rs 30-40 lakh product would go ahead. They have been planning for some time and they have the cash reserve to buy. So,if you look at the budget segment,it is anyway difficult for them to get a loan. The impact will depend on which place one is buying at. If you are buying at a place where there is already over heating,the real estate sector and the customers would be impacted.

Customers will have to do some intense planning before they think of buying a house. But here is something to cheer about. Borrowers from housing finance companies such as HDFC,LIC Housing Finance and PNB Housing may not have to pay pre-payment penalty charges if they make the payments out of their own source of funds. National Housing Bank,regulator for the housing finance companies,has issued guidelines for the same. HFCs and banks charge up to two per cent of the loan amount as pre-payment penalty. The charges are levied to discourage borrowers from switching a high-cost loan from one company to a low-cost one from another.