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A recent study by global real estate consultants-Knight Frank, on the Indian real estate scene shows that maybe the good times are ready to role in the real estate market finally! The study highlights that the tax sops given to housing in the budget, plus the changes in the Urban Land Ceiling Act and attractive offers from Housing Finance Companies (HFC’s) seem to have set the stage to bring real estate back into limelight.

With the stock market out of favor the investment should logically flow into the real estate market which represents an alternative investment avenue. Also with interest rates falling on FD’s people would prefer to park their funds in the real estate market. The report states though the US slowdown has impacted India expansion plans of the global software giants, and the Tehalka controversy and stock market scams have put a dampener on investments, the biggest boost to housing will come from the interest rate cuts offered by HFC’s.

The home loan industry has become bitterly competitive and the government has brought down interest rates. The result has been that interest rates have move south wards and from a high of 15.5% couple of years ago today the rates are as low as 10.75% (on an annual reducing balance) for a Rs 10 lakh loan for five years. In fact in today’s interest rate scenario it makes sense for investors to look out for more viable options in terms of lower interest rates an repay the older, higher interest loans.

The options include switching loans from one bank to another. Or negotiating with the same bank for a lower interest rate. Or moving to a variable interest rate regime where the interest rate is linked with the prime lending rate of banks and then moves up or down in tandem with the same. HFC’s are becoming more investor friendly and are allowing customers to shift (part of the loan or the whole amount) out to other banks, move from fixed to variable rates and vise versa at zero or minimal costs and to pre pay loans at zero or minimal penalty. With the tax concessions towards housing interest which were A) Rs 30,000 for loans taken before April 1999. B) RS 150,000 for loans thereafter. It makes even more sense to shift to the lower interest rate regime and pay off your old loan. However the tax-man has to be convinced that the new loan is being taken to repay the older housing loan.

So in the new low interest rate regime and the state of other investment avenues it would seem that things finally seem to be looking up for the real estate customer at last.

Aru Srivastava

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