RBI cautions on overheating Real Estate Market

Real estate prices have been continously going up over the last few months, in fact in some places i have heard that prices have gone up by 10% over the last three months.

The Reserve Bank of India in its last credit policy made some cautious remarks on the Indian Real estate scenario and has made changes in the way that real estate will get sold and loans will be sanctioned from banks/ housing finance companies ( HFC).

1. RBI has  asked for increased risk rating of all loans greater than 70L to 125% vs the earlier rates of 50- 100%. What this does is that it makes it less lucrative for banks and HFC. Now HFC basic aim is to give loans, so this typically should not affect them, however Banks is a different story. Mortgage lending is a small part of their overall business model.
What ever it may be, it will have a negative impact on the loan disbursement cycle for a lot of people

2. Loan disbursement amount fixed to a maximum of 80%. Earlier the banks used to have the flexibility of the amount of own money the buyer needed to bring to the table. Usually this was around 15- 25% of the purchase price depending on the credit review of the borrower. However with this being now at a min of 20%, it makes it even more difficult to buy a house ( Remember that the banks dont loan for things like, club house payments, parking , etc.- so actually it is more than the 15% one had to put upfront earlier)

 So while it is going on well, the economy is turning positive, the real estate sector is still quite heated- so tread carefully- its better to go for the ready to occupy property vs the to be constructed.

Happy Investing
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