Expat Indians await favourable mortgage rates

Dubai: Indian realty could be waiting for the next wave. Last year the rupee’s continued weakness translated into a bonanza for expat Indians looking for a property or land investment in the home country. But that upturn has since subsided and they are now looking for the next one.

They could yet get it. “With inflation seeming to be coming down gradually, commodity prices like gold and oil falling, the scenario for sharper rate cuts of about 50 to 75 basis points in the next nine months cannot be ruled out,” said Renu Sud Karnad, managing director at the housing finance company HDFC. (It is hosting a property exhibition — India Homes Fair — in Dubai where more than 50 Indian developers are represented.)

“This will augur well for property buyers as most lenders will pass on the benefit to the customers. Having said that, customers need not wait for interest rates to come down because as and when they drop, the benefit will get passed on as most of the loans are on a floating rates basis.”

As such, mortgage rates in India had seen downward pressure in the last two quarters. “The Reserve Bank of India (RBI) has been cautious and rightly so in cutting policy rates as inflation — especially the consumer price index — has been sticky. However, RBI has steadily brought down policy rates and cut CRR (cash reserve ratio) which has enabled interest rates in the system to come down steadily.”

Domestic demand

But a weak economy has given rise to concerns about whether Indian realty is in a favourable place. Domestic demand has been muted according to some quarters. But Karnad begs to differ.

“Given the worries of slowdown in the economy, the growth in mortgages has been very robust in FY-2013,” Karnad added. “Our FY-13 numbers announced last week bear out the strong growth; our individual loan book grew 31 per cent (including the loans sold during this period) and this growth has not been at the cost of quality which is expected to deteriorate during an economic slowdown. We have seen the gross non-performing loans improve to 0.70 per cent of the portfolio from 0.74 per cent and it has been the 33rd consecutive quarter end at which the percentage of non-performing loans has been lower than the corresponding quarter in the previous year.

“The rupee has been in the range of 53 to 55 to a dollar, very volatile and therefore not very much different as compared to the last year,” said Karnad. “Having said that, property is a big-ticket item and one of the largest investment one makes in a lifetime unlike any other asset class. Most buying property for personal use do not consider currency as a major influencing factor.

“Hence whether the currency is up or down in the short term has very little bearing on their decision to buy a property.”

Over the last two years Indian developers targeting expat Indians had offered sales packages where the upfront instalment was kept low and the bulk of the value would be paid post the handover. Their intention was to lower the cost barrier for reluctant buyer prospects.

Emerging trend

Do developers still need such marketing pulls to get through to buyers? “The 20:80/30:70 or “bank interest subversion schemes” have been around for many years now, so I won’t call this an “emerging trend”,” said Anuj Malik, vice-president for international sales at Unitech, the developer. “Having said that, there are quite a few such offers in the market currently and customers should consider taking advantage of these schemes.

“In India, the primary market prices generally move only in one direction, and that is northwards. Developers may introduce attractive payment plans or other offers to lure potential customers to take the plunge... but it is not very often that you will find a developer slashing rates to revive buying activity.”