RERA, GST pull down home loan growth
Mumbai: Home loan interest rates have dipped, but buyers’ sentiments have not improved, data shows, leading to a sharp fall in home loan growth.
Home loan growth in April-October fell 32.7% from a year ago, one of the biggest declines in the last five years, data from the Centre for Monitoring Indian Economy (CMIE) showed. In the same period in 2016, home loan growth was down 4.27%, while in 2015, it was up 26.89%.
Slow implementation of the new real estate regulation across the country as well as uncertainty over the impact of good and services tax (GST) on home prices have pulled down consumer sentiment in the last one year, said real estate consultants and developers.
In May this year, the new Real Estate (Regulation and Development) Act took effect.
Besides, the first few months of this financial year saw the lingering effects of demonetisation which had impacted the overall market both at the supply and demand ends, they said.
The decline in home loan growth comes at a time when interest rates have been falling. In the last two years, home loan rates have come down by 150-200 basis points. A basis point is one-hundredth of a percentage point.
“Three events have slowed down the real estate market in the last one year. First it was demonetisation, then because of RERA new launches came down dramatically. Thirdly, GST has increased the cost. All these have brought down the sentiment and as a result sales have been slow,” said Anuj Puri, chairman, Anarock Property Consultants, a real estate advisory firm. Apart from few states like Maharashtra, Gujarat and Rajasthan, most others are yet to implement the new regulations, creating a lot of uncertainty in the minds of consumers. Most customers are waiting for RERA-approved projects, he added.
Ashutosh Khajuria, executive director, Federal Bank Ltd, also agreed that RERA and GST have slowed down the overall home loan industry. “Consumers will take time to get used to the new (tax) rates due to GST. They will take time to sink in...There is a temporary blip. I think from next financial year it should get better,” he said.
Under the new tax structure, buying under-construction properties attracts a net effective rate of 12% as against the earlier rate of around 5.5% (including value-added tax and service tax).
Hit by demonetisation, home sales dipped by 41% in the October to December period last year across eight major cities as compared to the same period the previous year, while launches fell an even sharper by 61%, as per data from property consultant firm Knight Frank. However, sales started picking up by the first quarter of this financial year.
According to Liases Foras, another property advisory firm, homes sales grew by 6% in the June quarter over the preceding three months.
“The first six months of the year were slow. However, we are seeing a huge pick-up since September. We have seeing a great comeback and the numbers will improve as we go into the next year,” said Boman Irani, vice-president, Confederation of Real Estate Developers Association of India (Credai), a real estate body. Irani, who is also chairman and managing director of Mumbai-based Keystone Realtors Pvt. Ltd, said the confusion over RERA has settled down in Maharashtra and this will help improve consumer sentiment by next year.
“Real estate market has been down even before RERA came in... Demand for affordable housing is there but the pickup is slow. People may have applied for some of the affordable housing schemes and are still waiting,”said Pritesh Bumb, analyst, Prabhudas Lilladher, a Mumbai-based brokerage firm.