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| DREAMS COME TRUE:
Earning Rs 13,000 a month, businessman Sanjay Sinha, 36, could not
have thought of buying a flat in Mumbai but for a Rs 3.80 lakh loan
for 15 years. He will be paying an EMI of Rs 4,712. |
In normal
times, Sandeep Ghia would be seen as a finicky customer. The 28-year-old
doctor wanted to buy a house close to where his parents live in suburban
Mumbai so that his nine-month-old child could be left with them when the
Ghias went to work. Also, Ghia wanted to take a loan that would cover
more than 85 per cent of the cost of the house. If Ghia was demanding,
Khusru Mistry, a 31-year-old executive in a computer hardware firm, was
no different. "I wanted a loan that levied no pre-payment charges
and a processing fee of not more than 1 per cent," says Mistry. Can
borrowers be choosers?
Housing finance companies (HFCs) certainly think so. They are falling
over each other to attract customers with customised loan packages, low
interest rates and minimal paperwork, even pampering them by waiving the
processing fee. "I managed to get a 90 per cent loan from a foreign
bank," says Ghia. And Mistry has also finalised a deal for his dream
house.
Some builders have also joined hands with financiers to offer value-added
services. Mumbai-based Hiranandani Constructions, for instance, has tied
up with Citibank to turn into a one-stop shop for prospective house buyers,
offering everything from home loans to help with paperwork and even giving
out houses of non-resident customers on lease. It is also tying up with
HDFC Standard Life Insurance to offer a health insurance scheme to customers.
Much of what's happening has to do with the change in the age profile
of people buying and building houses today. Two decades ago, people usually
bought houses only after they retired. They mobilised life savings and
pawned jewellery. They never took loans. All that has gradually changed.
The average age of people buying homes is now in the early 30s. Ghia and
Mistry represent this growing tribe of young Indians.
Of course, aiding this trend is the easy credit from HFCs and the attractive
tax sops offered by the government to borrowers. On October 17, interest
rates were further cut, bringing them to all time low levels. Property
prices too are relatively low, though they are threatening to perk up.
"This is probably the best time to buy a house. If you factor in
the tax benefits, the effective rate of interest is about 8.5 per cent,"
says Keki M. Mistry, managing director of HDFC. "Today, the cost
of buying a house in India is about 3.5 times a person's annual income
as against 10-15 times a decade ago. The international norm is 2-4 times,"
says Mistry.
With a monthly income of about Rs 13,000, businessman Sanjay Sinha,
36, could not have thought of buying a house in Mumbai a few years ago.
But this Diwali, he was able to finalise a deal for his dream house in
suburban Mira Road. He will be paying an equated monthly instalment (EMI)
of Rs 4,712 for 15 years to repay the Rs 3.8 lakh he borrowed from HDFC.
In the more affluent Worli, 36-year-old banker Sandeep Gupta had bigger
dreams. Gupta, whose salary is Rs 2.5 lakh a month, bought the house he
was living in as a tenant. He borrowed Rs 75 lakh and will be paying an
EMI of Rs 95,000 till 2016. "My children liked the house and we had
got used to it. And their school is very close," he says. The EMI
is steep but Rs 1,50,000 of the loan repayment gets deducted from Gupta's
taxable income for the year, resulting in a saving of Rs 50,000 annually
at his income slab. Also, he saves on the monthly rent of Rs 50,000. As
Prathit Bhobe, regional business head (mortgages) of ICICI Personal Financial
Services, says, "If you take the rent and the interest lost on the
deposit that goes with it, it may only cost you a little more to take
a loan and buy a house."
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| RENT AS EMI: Sandeep
Gupta borrowed Rs 75 lakh and bought the house he lived in as a tenant.
The EMI of Rs 95,000 (15 years) is steep, but he saves Rs 50,000 a
month on rent and Rs 50,000 a year on income tax. |
What is common to all these people is that their loans are for a tenure
of 15 years. The change in the age profile of borrowers allows HFCs to
structure loans for longer terms. Till a few years ago, the maximum tenure
was 10 years. Today, most lenders also have 20-year loans on offer, although
the 15-year tenure is the most popular.
Lenders are innovating packages to suit the needs of the customers.
For instance, many young people are taking loans in which the EMI is initially
low but increases with the years when the borrower's income would also
rise. Another favourite is the loan with a floating rate of interest,
which means the EMI will vary with changes in interest rates.
HFCs are also competing on how the outstanding loan is computed. Lenders
like sbi calculate the amount outstanding on a daily reducing balance.
That makes a loan at a higher rate of interest cheaper than one that calculates
on a quarterly, or even a monthly reducing balance.
The competition is cutthroat. Banks and finance companies are also trying
to woo existing borrowers by dangling the refinance carrot. Some have
even started doing away with the need for a guarantor. Builders too are
doing their mite. There are many of them who pay a part of the interest
burden till such time the flat they are selling is ready to move in. Some
even allow a client to stay free of cost in another accommodation while
his home is getting ready.
There is a method in the madness with which financial institutions are
wooing customers. In the past year, borrowings by the industry in India
have come down sharply. Banks are flush with funds they want to lend.
The housing finance sector is a safe option-no borrower would default
on repaying a housing loan where the collateral is the property itself.
Low interest rates, attractive income tax benefits, prompt disbursement,
it seems the customer could not have asked for anything better.
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ISSUE JAN 7, 2002
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