Real estate news on Rate cuts no prop for home loans

Property loans/ Home loans, State Bank of India (SBI), Interest Rate Cuts, Housing Loan
Posted on Feb 26, 2013
Demand for home loans is likely to remain subdued despite the recent reduction in interest rates. Indeed, until home prices trend down or interest rates drop significantly, it is likely that existing home loans will move from one bank to another.

“Im not sure if a 25 bps reduction will fuel demand; and to that extent, Id assume demand to be inelastic. After foreclosures have been done away with, majority of loan movements are within banks and hence incremental growth is muted,” said Mahesh Dayani, country head for retail assets, ING Vysya Bank.
Most banks, private and public sector alike, have cut interest rates by 25-50 basis points (bps) since the Reserve Bank of India (RBI) reduced the repo rate and cash reserve ratio by 25 bps each at January-end.

It is increasingly becoming a market share game as banks enter a pricing war to corner whatever is left in the home loan market. Take State Bank of India or SBI, Indias largest lender, for example -- it posted a 14% jump in home loans in theOctober-December quarter, offering the lowest interest rates. Notably, of its total pie, 25% were loans taken over from other banks.

“Home loan demand is not too elastic to interest rates but more to home prices. My perception is, to stimulate demand, the interest rates will have to come down by at least 100 bps,” said Ram Sangapure, general manager - retail banking at Central Bank of India.

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