RBI Ensures Equal Benefits for New and Old Home Loan Borrowers

Floating-rate home loan borrowers, who often felt they got a raw deal, will now have a reason to cheer. The Reserve Bank of India’s (RBI) new rules will ensure that they get the full benefit of any reduction in interest rates. In its final guidelines on the base rate — the new benchmark that banks will use to price loans — the regulator has made it clear that any change in the base rate will apply to new as well as old customers. Banks often offered lower rates and even teaser-rate schemes to attract new customers.

However, existing customers were left out of these schemes, even though they had taken loans at floating rates. As a result, floating-rate borrowers did not get the full benefit of falling rates. This is expected to change, with the new guidelines on base rate coming into effect from July 1. The central bank has said: “Changes in the base rate shall be applicable in respect of all existing loans linked to the base rate, in a transparent and non-discriminatory manner.” It also said, “the actual lending rates charged may be transparent and consistent”.

The regulator had said that the base rate system was aimed at enhancing transparency in lending rates and would lead to a better assessment of monetary policy transmission. According to the RBI formula, the base rate factors in only cost and profit margin while risk and tenure premia will be charged over and above the base rate. However, RBI has given banks the freedom to use any other methodology, provided it is consistent and is made available for supervisory review or scrutiny when required.

The base rate will be the minimum interest rate, and banks will not be able to lend below it. The RBI has, however, made exceptions in cases of loans to employees, loans against deposits and differential rates of interest schemes. In such cases, the rates can be below the base rate. The central bank will separately announce export credit norms. Even a loan below Rs 2 lakh, on which RBI had so far stipulated that the benchmark prime lending rate, or BPLR, would be maximum rate that a bank could charge, will not be below the base rate.

“Now that banks can’t lend below the base rate, the commercial paper and non-convertible debenture market will grow. Second, our concern on short-term loans is addressed, given that the RBI has given banks freedom to have their own formula on base rate,” said JP Dua, CMD of Allahabad Bank. Base rate will replace BPLR. Banks will be allowed to use the BPLR system till December 2010. However, during the six months (till December 2010), banks have been allowed to change the benchmark and the methodology till the system stabilises. Thereafter, they are required to review their base rates at least once in three months. The central bank has also allowed banks to choose any benchmark to arrive at the base rate for a specific tenure that may be disclosed transparently.

Emaar: India, one of the most attractive investment destination

Mohamed Bin Ali Alabbar, chairman of Dubai-based real estate major Emaar, finds India as one of the most attractive markets and would continue to invest in the country through its joint venture company Emaar MGF. Emaar, which is a listed company with 68% public holding and the rest with the Dubai government, has invested around $1 billion in India so far. Alabbar said that the continued growth even during the period when the global economy was facing one of the worst financial turmoils proves the strength of the Indian economy.

Besides United Arab Emirates, Emaar is operating in 16 countries including US, UK, France In Canada. Its JV company Emaar MGF is presently planning to tap the capital market in India. Alabbar said that the exercise is mainly aimed at listing the company on Indian stock exchanges, which will bring in more transparency in the company’s operations and thereby help in instilling confidence among the various stakeholders including customers in the company. Talking about the financial crisis, he hoped that it is now over and things will improve. The recently reported financial crisis of Dubai World is manageable and will be contained, he said. “All sectors of the country are performing well,” he said.
Talking about India, he said he was pleasantly surprised as the country has returned to high growth radar. He said that Emaar MGF is doing exceptionally well. In fact, he is so confident that he refused to change the company’s strategy to delve into the affordable housing segment as most of other real estate companies in the country followed to beat the slowdown in the sector. “In order to protect its brand, Emaar MGF will continue to build houses for middle and upper-middle segments,” he said. He said that his group brings in certain quality and specification with its brand, which is not possible in the pure affordable segment. However, he added that it will provide value for money to its customers.
Even during the slowdown period, he said that his company ensured that no project is delayed. In India, he said that all the projects are on schedule. Despite problems and slowdown, the company is ready to deliver all the 1168 apartments of the Commonwealth Games village. He said all the works have been completed and the delivery is being given to the authority. 

SBI Set to Extend its Home Loan Lead this Fiscal

The country’s largest lender, State Bank of India is likely to be the number 1 position holder for home loans this fiscal too. This estimation is based on grounds of the bank’s projection of going ahead with home loan disbursals worth Rs 23,000 crore in FY’11. The portfolio growth of the bank has also been raised by nearly Rs. 5000 crore. Growth last year amounted to Rs. 17, 437 crore. The bank has been able to put up this growth despite signals of FY’11 being a tough one considering the rising trend of interest rates.
The bank is planning for new home loan schemes and still continues with its teaser home loan scheme beyond its tenor which ended in March while all other banks have moved out of it. The bank is also on tracks of increasing its retail book which includes personal loans, education loans and car loans with a projected growth of over Rs 35,000 crore for this fiscal. Auto loan segment is the next area of target for SBI after home loans. The bank has set a target growth of around Rs 3,400 crore and plans tie ups with Maruti, Honda and Chevrolet.
“We will continue to aggressively grow our home loan book as well as promotional schemes next financial year by tweaking interest rates wherever possible, as it is asset-backed lending,” said a senior SBI official. Much of its growth in home loan book has come from the special teaser home loan which it started in February 2009. At the end of the financial year 2007-08, the home loan book was just Rs 44,626 crore, which grew by Rs 9,437 crore during the financial year 2008-09 to Rs 54,063 crore.

India Hotel Industry Requires 150,000 Rooms in the Next 3 years- Tourism Secretary

India needs 150,000 hotel rooms over the next three years, two-thirds of which would be rooms meant for budget hotels, as the tourism industry revives, tourism secretary told reporters on Thursday. The inbound tourist traffic “is doing very well. We have positives for January, February and March,” Sujith Banerjee told reporters on the sidelines of an industry conference in Mumbai.

He also said 70 percent of the hotel infrastructure needed for the upcoming Commonwealth Games later this year have been completed. The Games are scheduled to be held in New Delhi in October.

UAE's new property regulations to offer more protection to home buyers

Two new real estate laws in the United Arab Emirates will improve protection for buyers, investors and landlords.

A new decree by the Dubai Executive Council will provide more protection to home buyers as well as increasing the Land Department's role as mediator in property disputes.

The decree, due to be published in the Official Gazette shortly, will mean that a buyer can request the courts to cancel a contract if the developer 'significantly changes' the agreed specifications, or refuses to deliver the unit without any 'justifiable reason'.

Buyers can also seek legal action if developers do not bind payments to construction based milestones approved by the DLD, or the unit is proved unstable due to major structural defects.

'The regulations whilst providing some much needed clarity over many issues also throws up some interesting characteristics such as reinforcing the wide degree of power and discretion the DLD holds in respect of projects,' said a spokesman for lawyers Hadef & Partners.

Under the regulations, which govern off plan property sales in Dubai, the DLD is able to cancel a project if the developer does not begin construction without 'justifiable cause' or because of 'gross negligence'. If the developer is 'not serious' about the project or declares itself bankrupt the DLD can also cancel the project.

The regulations also prevent developers from selling off plan units before taking possession, which includes actual control of the land. 'It is also still not clear how the DLD will approach situations where a purported termination of a purchaser is met with resistance and/or whether the DLD will remove an interest in the interim register without a court order where a legitimate dispute has arisen,' the law firm also said.

'Further clarity may also be needed where a bankruptcy event occurs as to how exactly the interim registered interests will be treated as far as priority is concerned in the bankruptcy situation,' it added.

Meanwhile new real estate legislation in Abu Dhabi will make it easier for landlords to evict low paying tenants. Under the new law, due to come into force in November, judges will settle rent disputes under the umbrella of the Ministry of Justice.

Although the current 5% rent cap will remain, the legislation will allow landlords to evict tenants at the end of the lease period after giving two months' notice for residential property and three months for commercial property.

The new law removes the automatic right of tenants to renew leases for five years with a maximum 5% rent increase each year.