The Hindu : Tamil Nadu / Chennai News : Builders see a ray of hope in RBI move

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Thursday, Oct 23, 2008
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Tamil Nadu

Tamil Nadu - Chennai

Builders see a ray of hope in RBI move

Aloysius Xavier Lopez

The expected interest rate cut will attract more housing loan seekers

“Home loan offtake has reduced by 25 per cent in the past two months”

CHENNAI: The recent intervention of the Reserve Bank of India (RBI), following its concern over the monetary and liquidity conditions in the wake of the global financial crisis, has increased the expectation of home loan customers of banks in the city.

“The money saved by the reduction in rate of interest will lessen the financial burden,” says M.Vitalis Noble, a customer who recently bought a house in Nolambur with the help of loan from a housing finance company.

“The number of files pertaining to residential segment that we process has witnessed a reduction of 30 per cent in the past two months. We expect an increase of 10 per cent in the coming months if interest rates are reduced by banks following the RBI intervention,” said R. S. Baabu, Chairman of Institution of Valuers, Chennai Branch.

“Home loan offtake has reduced by 25 per cent in the past two months,” adds an official of a private bank.

The cash crunch in the market and the tightening of lending by banks in the city have made marketing of housing units harder in the recent months,” said M.K. Sundaram, Chairman (South Centre), Builders Association of India.

Now builders see a ray of hope in the RBI move. The RBI has taken many measures recently to augment liquidity as the global financial condition continues to be uncertain and unsettled. Recently, it decided to reduce the repo rate (the rate at which the RBI lends money to banks against the collateral of government securities) by 100 basis points to 8 per cent with immediate effect.

Around Rs.3 lakh reduction in repayment over a 20-year period on a Rs.20 lakh home loan is likely for the customers if the banks reduce the interest rate by up to one per cent , sources in housing finance sector say.

An analysis of the repayment computation tables used by banks shows that the EMI would come down by Rs.64 per lakh on a 20-year loan tenure following a 100 basis point cut in the interest rate.

This would decrease the EMI burden for a loan taken for a period of 20 years, by around Rs 3 lakh.

The floating home loan rates currently are around 11.25 per cent.

The fixed rates are around 14 per cent for a 20-year loan.

Customers seeking housing loan have been concerned about the rising interest rates in the past. The recent development can be a catalyst for a cut in the rate of interest marginally, the bankers said.

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