Chennai may have Less Impact of Housing Loan Deduction

Even while welcoming the move of public sector undertaking (PSU) banks to reduce the rate of interest for housing loans up to Rs 20 lakh, builders are sceptical about whether it would have a major impact on their business in Chennai. Prakash Challa, president of the Tamil Nadu chapter of the Confederation of Real Estate Developers‘ Associations of India (CREDAI), said, “Such cosmetic measures will not be of much help when the whole housing sector is in crisis. We do not have even a single project anywhere within a 25-km radius of Chennai in the Rs 5 lakh to Rs 20 lakh bandwidth. Only in far-flung areas can such projects come up because of the high land price in Chennai. However, in such places support infrastructure and economic activity will be minimal and people will find it difficult to manage. CREDAI had requested the government and banks to reduce the interest to 7.5% for housing loans up to Rs 50 lakh. They could have fixed varying upper limits for availing loans on concessional rate of interest for different cities. For example, in Mumbai and Delhi, the upper limit should be Rs 50 lakh and for a city like Chennai, it could be Rs 35 lakh. Such a move would have encouraged many people to invest in houses and many builders to start new projects too.” Challa said that about 3,000 budget apartments were coming up in areas surrounding Chennai, but quite far away from the city.

“Chennai’s monthly housing loan disbursal is roughly Rs 1,500 crore. The special interest rates announced by PSU banks loans up to Rs 5 lakh at 8.5% interest and loans between Rs 5 lakh and Rs 20 lakh at 9.25% interest will contribute to a business of only Rs 450 crore over the next seven months, or Rs 64 crore a month. It is clear that PSU banks are targeting just above four percent of the city’s business, that too through projects in remote areas. It will not bring about a big change in the housing sector. This reduction in interest will benefit only tier II cities such as Madurai and Tiruchi and, to a lesser extent, Coimbatore. Banks have to be more aggressive in fixing the higher limit for housing loans,” a senior executive in a leading bank said.

People are also worried that PSU banks banks are not willing to extend the same benefits to existing customers. If it is extended to existing customers, the benefit will reach a lot more people because a sizeable section of people who purchased apartments four to five years ago would have done so at rates ranging from Rs 12 lakh to Rs 20 lakh. T Rajasekharan, a resident of Mogappair, said, “There is every chance of a major fall in housing loan interest rates in the near future because in the past three months RBI has made available to banks close to four lakh crores of rupees. Banks will be forced to reduce interest for all types of loans soon. So people who take loans from PSU banks on the basis of the present offer might end up paying a higher interest in the long run.”