Thursday, November 11, 2010

RBI's stance on home loans to increase borrowers' woes

"Every borrower should examine his repaying capacity rather than his loan eligibility"
"If the property value dips any point of time, banks can ask for additional collateral. At this point of time, you have to provide additional collateral or pay the extra margin money. If you are not in a position to pay up the extra cash/collateral, the bank can categorize you as a defaulter. This is clearly mentioned in the home loan agreement."
“Don’t borrow up to the maximum limit as a percentage of your income. You should keep aside some contingency funds and investments which will come in handy in case of unforeseen emergencies such as job loss, forced sabbatical or even a family."

Home hunters are in a spot. While real estate prices are not showing any signs of easing (in fact, they have started hardening again), the Reserve bank of India (RBI) has chosen to tighten a few norms for home loans , adding to borrowers’ woes. In its recent policy review, RBI has taken three steps that will adversely impact prospective homebuyers who are dependent on home loans. To begin with, the loan-to-value ratio has been lowered to 80% from 85%.
To read more, please, visit:
The Economic Times

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Sunday, November 7, 2010

New realty funds - not suitable for all!

However, real estate funds are for investors who already have savings parked in other asset classes and also have allocable surplus in hand. As Mr Mahadevan states, “for a 22-year-old guy who is looking to own his property, a real estate fund cannot be viewed as a substitute”.

While real estate funds may help investors do away with the hassle of locating a good property to invest, offer diversification and avoid the legal impediments involved, they remain a ‘medium to high risk' investment option.

Mr Sunil Rohakale, Executive Director, ASK Investment Holdings, feels that it is important for investors to assimilate the fund strategy besides knowing key clauses tied to such funds. Real estate funds typically come with a 5-8 year lock-in, which makes them illiquid. The structure, fee and payout patterns in these products are also complex. Read More

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Wednesday, November 3, 2010

Banks will now lend only 80% of property price

Now, anyone applying for a home loan from a bank will have to pay a margin money of at least 20% of the value of the property. This in effect means that you will have to shell out more from your own savings to buy that house you have been eying for a while. Earlier, this margin money varied between 10% and 15 %
Top industry officials feel this is a pre-emptive measure and is a warning sign for all in the real estate sector — developers, financiers and also the buyers — that there could be danger ahead.

“The RBI has always taken pre-emptive measures to prevent asset bubbles, particularly in real estate. It is in this context that the RBI has restricted the maximum loan to value ratio to 80% and increased risk weights on housing loans above Rs 75 lakh,” said Renu Sud Karnad, MD, HDFC, the mortgage finance major.

The RBI measure could also work in favour of home buyers in the form of a either a slow or nil rise in real estate prices. “The message from RBI is clear: There is a worry about real estate prices spiralling. This concern will ensure that there is a short-term cap on real estate prices and in the near future it may come down marginally,” said Gagan Banga, CEO, Indiabulls Financial Services. “A correction in prices should result in higher volumes given the strong macro economic conditions,” Banga added. Read More

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