RBI's New Notification on Home Loans

Bangalore: Reserve Bank of India (RBI) has come up with a latest notification to banks regarding the exclusion of stamp duty charges, registration and other similar charges while calculating total property value which are included by banks when they finance. This step of RBI is likely to result in further drop of home sales for the medium and lower segment people, according to developers and consultant, reports Raghavendra Kamath of Business Standard.

This notification brings along the fact that home buyers will now have to organize more resources on their own to buy a house, as banks will no more provide loan for these charges.  Sanjay Dutt, chief executive, Jones Lang LaSalle, a property consultant cited that “Home loan borrowers are already stretched…Property prices are high, interest rates have peaked , stamp duty and registrations are high in many states and job markets are also not that great. I think buyers of homes in the Rs 20-70 lakh bracket will get hit further and sales in this segment could fall by a further five to 10 per cent,” reports Business Standard.

In December 2010, it was observed that banks gave away excessive loans to real estate on this note RBI had instructed the commercial banks that for property above 20 lakh, banks could not provide more than 80 percent loan of the total estimated property value and for properties below 20 lakh it was confined to below 90 percent. Recently RBI observed that some banks include stamp duty, registration and document charges in total cost of housing property while lending. According to RBI, “This overstates the realizable value of the property, as stamp duty, registration and other documentation charges are not realizable. Consequently, the margin stipulated gets diluted,” reports Business Standard. Therefore banks should exclude stamp duty, registration and other charges from the cost of the housing property they used to finance.

Dutt of JLL further stated that the reason behind RBI’s notification is to control jeopardy from real estate segment and to bring in genuine buyers in the property market. As per Business Standard report, Paras Gundecha, president of the Maharashtra Chamber of Housing Industry cited that “If home buyers have to pay more, there will be an impact on home sales.” As of now in most of the Indian cities property sales have already dropped because of low income, skyscraping interest rates and hike in property cost.

Thereby, developers are more concerned about the latest notifications which might bring negative reaction towards real estate market. Lalit Kumar Jain, president, Confederation of Real Estate Developers Associations of India (CREDAI) stated that “Too much of regulations always create negative sentiment among banks and borrowers,” reports Business Standard.

Deepak Parekh, chairman of HDFC said that the latest RBI’s notification will bring no such impact on home sales. Traditionally, buyers used to finance 20 percent of their own money to buy a property and from now on they have to pay stamp duty and registration as well by themselves. And he further said that, buyers can afford this price without much issue.