Realty for lower interest rates

February 18, 2008

Source: The Asian Age

Hyderabad, Feb. 13: Lower interest rates seems to be the rallying cry for the Indian real estate industry in the run up to the union budget. This, according to industry players, is one measure that will make housing accessible to the common man.
Finance minister P. Chidambaram seems to be listening too, which is evident from the number of public sector banks that have cut lending rates over the past few weeks. On other factors such as raw material costs however, voices are as fragmented as the industry itself. Discussions with industry participants also suggest that the finance minister could introduce a tax break for developers building houses for the lower income groups.
Several years of low interest rates coupled with tax benefits had led to a boom in the housing sector, while mortgages had increased at a rate of over 30 per cent per annum. Over the past year, however, the interest rates for home loans have risen between 6.5 per cent to 7.5 per cent to over 10 per cent. Coupled with higher property prices across the country, this has led to a slowdown for the industry, at least in some high value pockets.
"The best thing one can hope for is a lower rate of interest, which will make home finance cheaper," says Rajeev Talwar of DLF. "Besides that, it would help if we could get world scale rates for inputs like Steel, cement, cranes, etc."
The sentiment is echoed In Mr Ravi Ramu, CFO, Purvankara Projects. "Cement is 10-12 per cent of construction cost for us while steel is another 8-10 per cent. Costs here have increased, but they are not earth shattering. So we are not really concerned about the cost of raw materials like steel and cement," he says.
"One sop that the sector could use is tax benefits for developers building houses for the lower income groups. As of now, you either live in a slum or in a high rise � there's nothing in between," Mr Ramu adds.
Mr Sudhir Reddy, chairman of IVR Prime Urban Developers feels that to enable affordable housing, the government could either offer land at a concessional price, or it could increase the floor space index available to real estate companies.