Interest in a house deal

The average home buyer is getting younger and opts for loans with repayments spread over a couple of decades, taking in his stride the interest rate cycles.



A buyer looking to own a house is more concerned about managing the EMI (equated monthly instalments) on his home loan than the interest rate, asserts Mr Srinivas Acharya, Managing Director, Sundaram BNP Paribas Home Finance, explaining the continued positive outlook on housing purchases as evidenced by the home loan offtake.

Today among the major concerns for a developer or a buyer in the market is the buoyancy in interest rates. But the residential market, particularly in Tamil Nadu and the South in general is positive, he says.

This reflects the general opinion that seems to prevail in the sector, whether it is the housing finance institutions or developers. The hikes in base rates effected by the Reserve Bank of India in the last one year may not have occupied the minds of home buyers as much as it has that of financial analysts for now. Also, the market in the last five years has seen a peak, dip, and is now coming a full cycle. The buyers are better prepared to cope with the changes, they say.

Low on the list

Sundaram Home Finance may be a relatively small player in the field, but it has a fair sampling of the market and can confidently look forward to growth in the coming quarters, says Mr Acharya. “I am of the strong view that among the various parameters that a buyer considers before buying a house, interest rates figure low on the list,” he asserts.

To most buyers, the traditional factors in deciding a purchase continue to hold good. They are location, location, location. A buyer does not buy a flat but ‘the flat' of his choosing and once he has made up his mind, there is little that can make him change his mind.

Why should borrowers worry too much about growing interest rates when variable rates have become the norm, he asks. The average age of a home buyer is dropping by the years and they are all looking at loans with repayments spread over a couple of decades. It is inevitable that interest rates are bound to go through a few cycles during this period, he points out. The total monthly outgo, the EMI is of greater concern, and as long as the buyers can provide for that, they will, he said. They manage that by extending the tenor of the loan, opting for a lower borrowing and by looking at an optimal size and location of a home of which there are a wide choice.

For the housing finance institution, it is turnaround time of the loans that holds the key to a deal, not the interest rates, says Mr Acharya.

HFCs too not bothered

To illustrate, he recalls an incident when a buyer wanted to avail of a home loan to finalise a deal. The office had worked extra hours to process the papers and clear the loan to enable registration of the property the next day. The borrower had asked about the interest rate only after the registration papers were cleared, he says.

That is the strength and contribution of housing finance companies to the market.

This is particularly true of the first time home buyer who is looking to own the roof over his head. It is only an investor, some one picking up a second or third property with surplus funds who is more concerned about the interest rates, he says. Based on the company's experience, increases in interest rates have not hit the disbursements for HFCs.

Also, buyers have seen the high rates prevailing in 2007 and 2008 and between then and now the purchasing power has certainly gone up. Product prices too have increased though at a pace matching the affordability. So buyers ‘look at the current opportunity,' he says.

Markets buoyant

Markets in the south are buoyant and that will support the more than 50 per cent growth that Sundaram BNP Paribas is targeting. It is not just the major metros, but also the Tier II towns that are driving the market. Elsewhere, there are pockets of growth that the company has identified to target specifically — markets such as Bhubaneshwar up to Cuttack, Nasik and Kolkata. In Kolkata there is a spurt in demand with joint sector projects taking off, with the Government allocating land for projects to ensure supply of affordable housing for the middle and lower income groups.

It is primarily in the south that Tier II towns are gaining prominence.

In Tamil Nadu for instance, IT is moving to smaller towns backed by the educated workforce available in these centres. Towns in Andhra Pradesh are growing, except for Hyderabad.

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