HDFC may reduce home loan rates soon

India’s biggest mortgage lender HDFC says home loan seekers can expect a 0.5-0.75% reduction in interest rates ahead of the festival season if the Reserve Bank of India reduces rates later this month.

“If market rates come down, it normally takes us two-to-three months to pass it on because our liabilities get re-priced,” HDFC’s managing director Renu Sud Karnad said. She said she was hoping that the central bank would reduce rates at its annual monetary policy review on April 17.

The RBI has raised interest rates 13 times since March 2010, by a cumulative 375 basis points in its efforts to tame inflation.

Costlier loans have forced potential home buyers to postpone their purchase decisions and have, in turn, impacted the real estate market. Homes sales in Mumbai have dipped by over 40% in the last one year while other cities have seen a 20% drop.

Karnad, however, said high interest rates have not had much impact on home sales falling in the Rs 20-50 lakh bracket, whether in big cities or Tier II cities, because the need and demand for homes in this price range continues to remain high. She said HDFC’s home loan portfolio has increased in the last one year, but did not share the numbers.

“There is no concern or worry among young, middle-income Indians wanting to buy a house except in Mumbai, which is expensive,” Karnad said.

While most cities across the country have seen steady home sales in the last few months, Mumbai has been a concern for developers as well as lenders. Karnad, however, said even in Mumbai sales are happening in the suburbs, where price points are still affordable.

Home loan growth in smaller cities too has been phenomenal. Cities like Baroda, Lucknow, Chandigarh and Salem have seen 30-40% 0growth in home loans. “These markets might be small and this growth might be on a smaller base, but the fact is that there is demand. What they need is better supply of homes,” Karnad said. She said that the market expects a 10-15% cut in home prices, which seems to be high. Karnad also pointed out that builders are faced with rising cost of construction. Prices of cement, steel and labour have grown in the last two months, she added.