Bank interest cuts will not benefit house hunters

February 23rd, 2008 - 12:06 pm ICT by admin  

By Abhijit Deb and Prabhat Sharan
Mumbai, Feb 23 (IANS) The euphoria over banks cutting prime lending rates (PLR) may not spill over to the realty market as bankers and realty firms say they are unlikely to encourage house hunters. Both state-owned and private sector banks recently reduced their PLRs 0.50 percent from 0.25 percent. This results in a reduction in interest rates of lending, including home loans.

Axis Bank’s (formerly known as UTI Bank) senior vice-president Sujan Sinha said the cut in PLR would not affect the property prices in India.

“Axis and most other banks cover borrowers with minimum net income of Rs.7,500. But then, comparing the sky-high property prices, especially in metros, it is like a drop in the ocean, which hardly makes any ripple or difference to middle-class consumers,” Sinha told IANS.

Echoing similar views, major Mumbai realty firm Nahar Group’s senior vice-chairperson Manju Yagnik said: “In order to bring a visible and ostensible change in the real estate prices, the banks will have to slash interest rates further.”

“With home loans dipping, we are adopting a wait-and-watch policy especially with the budget just round the corner. There will be no immediate effect on the property prices,” she said.

“No doubt there will be a small correction in the real estate prices but then this will be more due to the falling market and economic slow down,” Yagnik pointed out.

The managing director of real estate firm Marathon Group, Mayur Shah, said the downward revision of PLR was “in no way going to affect the real estate prices”.

“It all depends on the cost of land and cost of construction,” he said.

Shah pointed out that the positive impact of the rate cut will be on the consumers who were earlier shying away from taking loans, fearing the hike in interest rates of home loans to continue.

Union Bank of India chairman M.V. Nair, whose bank slashed interest rates across the board last week, told IANS, “We have acted on the general feeling that interest rate should come down.”

“We are convinced that this was the appropriate time as the depository and lending rates needed some correction,” he said, adding that he was hopeful that the rate cuts “would certainly benefit and attract the middle class”.

However, some other leading private banks do not appear to be in any mood to bring down their PLRs, at least not till the budget.

Said a senior official of ICICI Bank: “We have already announced that we have not taken any decision in this regard so far and we are still in the process of assessing our cost of funds.”

Standard Chartered Bank’s head of consumer banking, Murali Natarajan, also spoke in the same vein.

“We are discussing this matter and that is it. But I can assure you that the decision will not be taken before April.”

On the issue of recent rate cuts by a few banks affecting real estate prices, Natarajan said: “I do not foresee any significant changes or correction in the real estate prices due to the PLR revision.”

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