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Banks unlikely to offer festival discounts
Joydeep Ghosh in Mumbai
 
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October 01, 2008 10:47 IST

Prospective home buyers, who are looking forward to discounts this festival season, may be in for a rude shock. According to banking sources, most banks are unlikely to offer any discount.

Between October and December, when almost 60 per cent of home-buying happens, banks offer discounts like reduced rates and waivers on administrative and processing fees to lure customers.

Most of the banks admit that tight monetary conditions are making things very difficult for them. "Given that there is a tight liquidity situation, there is very little chance of banks offering anything special this season," said a senior manager in a housing finance company.

Another home loan head of a private sector bank said that the banking sector's cost of borrowing was as high as 12-13 per cent. "In such circumstances, it is hard to think of any drop in rates," he added.

There could be some relief for buyers from builders though. At a recent meeting of the Maharashtra Chamber of Housing Industry, a body of builders, proposals were mooted that developers should bear stamp duty, registration and floor rise charges. Also, it was advocated that builders should take upon themselves a part of the interest cost in the initial years to kick-start home buying.

In other parts of the country as well, developers are moving towards building cheaper houses. A large number of developers are offering houses for the middle class at Rs 25-35 lakh (Rs 2.5-3.5 million).

However, property experts believe that buyers will not be too enthused with just sops if the rates do not go down.

"Given that property rates have really shot up, unless there is a fall in the per square feet rate of flats, it is unlikely that buyers will come in," said a banker.

Banks, on their part, are looking forward to the Reserve Bank of India's [Get Quote] Mid-Term Review of the Monetary Policy on October 24 for some positive signals. But most of them are worried that inflationary conditions coupled with financial crisis in the world markets are the prime concerns for the apex bank.

The only hope comes from the recent fall in crude oil prices. "If the inflation rate comes down, RBI might be encouraged to tinker with the indicative rates," said a senior banker.

On the other hand, the worst is being contemplated. Industry sources, in fact, are expecting that there could be a further hike in the interest rates. Sources said that some banks were already discussing a 50-75 basis point hike in the next fortnight. "Interest rates could go up further because banks are finding it rather difficult to hold on to the present rates," said a banker.

Home loan rates have shot up from just over 7 per cent to10-13 per cent in the last three years. Another round of hikes would imply that the floating rates would cross 13 per cent thereby, increasing the burden for the existing and serve as a deterrant for new borrowers.

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