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Housing Finance Companies engaged in price war.

Mar 31, 2000

Housing Finance Companies are engaged in a price war by offering a slew of products aimed at a wide variety of consumers.HDFC and ICICI have already reduced the rate of interest on housing loans. Several other companies such as Punjab Housing Finance Company (PNB) are expected to follow suit.

PNB has reduced interest rates for loans upto Rs. 1 mn with a repayment period of 15 years by 0.25 points, from 13.5% to 13.25%.

For loans ranging from Rs 1 mn to Rs 1.5 mn, there has been a reduction in interest from 14% to 13.5% for the tenure extending to 15 years.

Similiarly the upper limit on loans for Non Resident Indians (NRIs) has been hiked from Rs 2.5 mn to Rs 5 mn.

This reduction in rates is on account of the recent reduction in the interest on provident funds . A further reduction in rates can be expected once the bank rate and cash reserve ratio (CRR) in the forthcoming credit policy as it will lead to an improvement in liquidityThe abolition in interest tax is also a move that is likely to give impetus to the reduction in rates.

There has been a bottoming out in real estate prices, which offers a good collateral at this point of time.

Salary levels have gone up considerably, leading to increasing comfort levels with regard to repayments.

Finance Portals and the Web is being actively used to promote housing finance schemes. Besides fairs and exhibitions also actively promote sales which focus on simplicity in documentation and speed in disbursement.

As repayments of interest to the extent of Rs. 75,000 are exempt from tax, there is bound to be an increase in demand for housing loans.

Market view:
A lower interest rate regime, higher tax benefits and an environment when property prices have bottomed out makes the scenario attractive for taking loans to purchase property. Most of the housing finance companies have witnessed increased demand for housing loans. Among the many players in this field, the analysts prefer HDFC and ICICI.

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