Friday, May 9, 2008

Home loan rates may fall further

For the past two years, interest rates have been moving northwards, forcing many potential home buyers to either postpone their buying decision or bear the brunt of high home loan costs. Add to that spiralling property prices and no wonder many buyers have been scared off.

Things, however, seem to be to calming down a bit. Says Akshaya Kumar, CEO, Park Lane Property Advisors, "The basic trend of home loan rates is downwards."

According to him, interest rates have already peaked and banks are now looking at the Reserve Bank of India (RBI) to cut its indicative rates as a signal.

Last week, when HDFC announced a festival season rate of 10.5 per cent, executive director Renu Sud Karnad clearly indicated that it was because their cost of borrowing had come down.

Others like State Bank of India (Maharashtra and Goa), Bank of Baroda , IDBI and Allahabad Bank have also cut rates in the range of 25-50 basis points.

But coming on the back of an over-two-per-cent hike in the last one year alone, the cuts do not look spectacular enough to enthuse the potential home buyer.

As a result, many customers are still sitting on the fence expecting rates to go down further. Bankers, meanwhile, have also not been over-aggressive because many are looking at this as a cooling off period.

Therefore, a cautiously optimistic view is being taken, and no one is joining the battle to get customers.

Now that the buying season is in, lenders would like to see the RBI come up with some measures so that sentiments improve further.

Says Harsh Roongta, "With inflation under control and the currency appreciating, there is definitely some pressure on the RBI."

The counter argument is that with oil prices at over $80 per barrel, sooner or later the rising fuel prices will be passed on to the consumers. And that would lead to a rise in inflation.

However, bankers like M Sundararajan, chairman, Indian Bank , believe that there should be no pressure on the apex bank to do anything.

"The RBI had indicated that there should be a deceleration in credit in 2006-07 itself. But because, the industry did not respond, it led to an imbalance in the system and thus, a hike in rates," he explains.

But, subsequently, inflation has been brought under control. "Also, deposit rates have been slashed, so a cut in credit rates is already due," adds Sundararajan. And there is good liquidity in the system, thereby making life simpler for bankers.

Optimists like Kumar believe that the RBI is likely to give the added edge by reducing indicative rates either in October or January. And if that happens, it will be great news for the home buyer.