At a time when the equity markets are being bombarded with bad news, borrowers have been having a good time. The interest rates have been coming down steadily and more banks have come out with home loan interest rate cuts. As a result, home loans of most banks have slipped below the 11 percent level and indications are that the stage is set for the next round of rate cuts.
If the interest rates are showing a negative bias, it is largely due to the changes in the macroeconomic factors. As you would have noticed, inflation, which pushed the central bank to tighten the monetary situation has eased considerably and is well within the manageable range of six percent. The outlook for interest rate is even better with the general expectations of a further fall in the index. In fact, economists have been vocal that the inflation rate could slip to 3-4 percent in the coming two quarters.
While such a forecast looked unthinkable 2-3 quarters ago, the change in scene has been a result of a combination of various factors and crude oil price dropping has been the primary driver. The fall in crude oil price has been more dramatic than its rise to above USD 140 a barrel during the last year. The general weakness in the global economy has pushed the prices further down. The effect of crude oil price dropping has been significant on commodity as a sector. The price fall has been sharp in the last quarter in all metals. Barring gold, most commodities have fallen by 30-40 percent and this augurs well for the interest rate scenario as it ensures inflation remains under check.
For the borrower, that should be good news as lower inflation would enable the banks to lower the home loan interest rates. Since the downtrend has affected the borrowing sentiment to a great deal, banks are likely to step up their efforts to push lending. At present, however, banks have been wary of lending but the deposits they mobilise will have to find their way into loan books as lending is an integral part of financial services.
It is in this background that the individual borrower has to work out his borrowing strategy and should go back to the days of the floating rate option. As you are aware, even during the early part of this decade, interest rates had touched a peak of 16-18 percent and fell sharply to a 9-11 percent range. The sharp fall was more in the case of home loans as that was a preferred asset product for many. However, there is a small difference in the current scenario as interest rates have begun their downward journey before testing the seven-year old levels. More importantly, the size of the market - both for property and loans - has quadrupled in less than a decade. As a result, the average size of the loan which was in the range of Rs four lakhs at the beginning of the decade is in double digits and average ticket size has gone up to Rs 15-20 lakhs in metros. That is also the reason why the benchmark for concession is pegged at Rs 20 lakhs.
Such measures are likely to redefine the property market in the short to medium terms and you already see plenty of action in the mid-price property segment . Since there is also a good demand-supply gap in the mid-sized properties, this could lead the market recovery in the coming days.
If the interest rates are showing a negative bias, it is largely due to the changes in the macroeconomic factors. As you would have noticed, inflation, which pushed the central bank to tighten the monetary situation has eased considerably and is well within the manageable range of six percent. The outlook for interest rate is even better with the general expectations of a further fall in the index. In fact, economists have been vocal that the inflation rate could slip to 3-4 percent in the coming two quarters.
While such a forecast looked unthinkable 2-3 quarters ago, the change in scene has been a result of a combination of various factors and crude oil price dropping has been the primary driver. The fall in crude oil price has been more dramatic than its rise to above USD 140 a barrel during the last year. The general weakness in the global economy has pushed the prices further down. The effect of crude oil price dropping has been significant on commodity as a sector. The price fall has been sharp in the last quarter in all metals. Barring gold, most commodities have fallen by 30-40 percent and this augurs well for the interest rate scenario as it ensures inflation remains under check.
For the borrower, that should be good news as lower inflation would enable the banks to lower the home loan interest rates. Since the downtrend has affected the borrowing sentiment to a great deal, banks are likely to step up their efforts to push lending. At present, however, banks have been wary of lending but the deposits they mobilise will have to find their way into loan books as lending is an integral part of financial services.
It is in this background that the individual borrower has to work out his borrowing strategy and should go back to the days of the floating rate option. As you are aware, even during the early part of this decade, interest rates had touched a peak of 16-18 percent and fell sharply to a 9-11 percent range. The sharp fall was more in the case of home loans as that was a preferred asset product for many. However, there is a small difference in the current scenario as interest rates have begun their downward journey before testing the seven-year old levels. More importantly, the size of the market - both for property and loans - has quadrupled in less than a decade. As a result, the average size of the loan which was in the range of Rs four lakhs at the beginning of the decade is in double digits and average ticket size has gone up to Rs 15-20 lakhs in metros. That is also the reason why the benchmark for concession is pegged at Rs 20 lakhs.
Such measures are likely to redefine the property market in the short to medium terms and you already see plenty of action in the mid-price property segment . Since there is also a good demand-supply gap in the mid-sized properties, this could lead the market recovery in the coming days.
