Developers Breathing Easy

Many See Tighter Norms As A Boon For End-Users Looking To Buy Property

THE realty sector is unlikely to be impacted adversely following the measures announced by the Reserve Bank of India on Tuesday aimed at tightening home loan regulations. However, rising capital values can play a spoilsport hereafter as the central bank through these measures has alerted home buyers, developers and banks, industry experts said.
The central bank on Tuesday, as part of its monetary policy review, raised repo and reverse repo rates by 25 basis points each while keeping the cash reserve ratio and bank rates unchanged. It also announced reduction in loan-to-value ratio to 80%,which most commercial banks were keeping at around 85%.I dont think this will result in a snowball effect. This is a warning and needs to be taken seriously or else, we may see both demand and prices declining as eventually the high cost will be passed on (by banks), said Sanjay Dutt, chief executive officer, Jones Lang LaSalle India.
At present, for loans up to 30 lakh, the risk weight on home loans with up to 75% LTV ratio is 50%.For housing loans above 30 lakh,it is 75%.And if the LTV ratio is more than 75%,the risk weight of all housing loans is 100%,irrespective of the amount of the loan. Realty developers are also viewing these measures as a positive for the sector. According to them, RBI has prudently acted to ensure that end-users are encouraged and investors are discouraged from realty buying and consequently ensure that prices dont rise too fast. The average loan to home value ratio is less than 60% in the city of Mumbai. Only investors seek very high loan-to-value ratios, not end users, said Abhisheck Lodha, director, Lodha Group.
RBI also increased the risk weights for loan of more than 75 lakh to 125% from 100%,and raised provisioning requirement for teaser rates to 2% from 0.4%.According to Ajay Dsouza, head of research at Crisil, increasing risk weights for loan of more than 75 lakh may not impact the demand, as a large part of demand is for loans less than that. However, borrowers with a loan above 75 lakh may have to face a 150-basis point higher cost as a result of all the measures announced on Tuesday, said an analyst with a foreign brokerage.
Although market experts expect some impact of these moves on the recent 10/90 offers involving maximum LTV of 85% and 15% payment by home buyers, developers see no significant pressure on demand. This (the buyers contribution) will now increase to 20%,which is very small, and will have no negative impact. We await the definition of teaser loans because the enhanced provisioning requirements may cause banks to go slow on teaser loans, based on how RBI defines those, Lodha said.

Economic Times, New Delhi, 03-11-2010