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How to reduce your home loan interest rate

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How to reduce your home loan interest rate

By Manoj Nagpal, CEO Outlook Asia Capital
On January 2, 2017, one of my friends called me in excitement. “SBI has reduced the home loan rates to 8%. Seems HDFC is just fleecing me still at 9.75%. How do I shift my home loan?” There are some inherent fallacies here and let’s see what really happened to home loan rates and what should be your next steps to benefit from the current cuts in lending rates.

Banks now follow a MCLR (marginal cost of fund-based lending rate) model whereas HFCs (housing-finance companies) continue on the PLR (prime-lending rate) model. The MCLR is the benchmark rate below which a bank cannot lend and is calculated based on a prescribed formula based of four variables (a) marginal cost of funds (b) operating cost (c) tenure premium and (d) negative CRR-carry cost.

MCLR replaced the earlier base rate system, which, in turn, had replaced the PLR in banks. The objective of these shifts by the regulator (RBI) has been to move to a more transparent, quantitative and market-determined rates. Thus MCLR is a more dynamic model reflecting the incremental cost of funds and changes on a monthly basis. All new home loans taken from a bank with effect from April 2016 are on MCLR. But prior home loans would be on base rate or the PLR, which will be slower (read ‘very slow’) to react to changes in the interest rates. Home loans from HFCs like HDFC still work on the PLR model.

Due to the formula system of MCLR, SBI had to cut its MCLR from January 1, 2017, from 8.9% to 8%. SBI did not pass on this entire reduction of 90 bps to customers. Concurrently, it increased the margin on top of MCLR. Thus new home loan rates fell by around 50 bps and now will be in the range of 8.6%-9.1% depending on the ticket size and type of loan.

Being on an MCLR system provides home-loan customers with a more dynamic interest rate environment and is beneficial to customers. When one takes a home loan linked to MCLR, one should remember that the interest rate changes only on a pre-determined reset date. Between two reset dates, an MCLR home loan works like a fixed rate loan oblivious to any changes in the MCLR. RBI allows banks to have a reset period up to a maximum of one year.

For example, SBI has a reset period of one year, whereas HSBC has a reset period of 3 months. Thus a home loan customer who had taken a loan from SBI in Dec 2016 say at 9.3%, will not have any benefit of the current reduction in interest rates till December 2017, but new customers will be eligible for lower rates. Ideally one should choose a lower reset period to have a truly floating home loan.

What happens if you are on base rate or PLR model. Either you should move over to the MCLR model (which is a mandated option you have, though your bank may charge you for it) or wait for the base rate/PLR to come down.

SBI in the past 15 months has reduced its base rate by 5bps and the MCLR in the last nine months has reduced by 1.2% showing the reluctance of banks to cut base rates and thus not passing on the benefits of lower rates to existing customers. With the current reduction in MCLR, this may be the best time to re-negotiate and switch your loan over to the MCLR system. If you are with an HFC like HDFC, you could negotiate with your home-loan provider to shift your interest rates down to the prevailing market rates or shift over to a bank on the MCLR system. Every day of delay costs you money lost in higher interest
Source: economictimes.

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NTR Housing Scheme In Full Swing: Chief Minister N. Chandrababu Naidu

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NTR Housing Scheme In Full Swing: Chief Minister N. Chandrababu Naidu

On Thursday, Andhra Pradesh Chief Minister N. Chandrababu Naidu said with the estimated expense of Rs. 5,556.74 crore, the construction of more than 2,44,164 houses, out of the proposed 3,03,044, has been commenced under the NTR Housing Scheme 2017.

While addressing the second day of the Collectors’ Conference he also said the construction of the remaining houses will begin soon. He mentioned that Prakasam and the Kurnool districts are ahead of the schedule in the urban housing scheme. Also, the works are in full swing in the Nellore and the Guntur districts under the rural housing scheme.

According to Naidu, the government will complete 2.5 lakh houses by January next year and another lot of two lakh houses by June.

By October 2, 2018, the state government intends to finish the construction of all the houses and plans to celebrate with massive house warming ceremony with local public representatives. This will help them set an example for housing schemes in other states.

Also Read: Raunak Group Presents Apna Pehla Ghar Campaign

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A Mumbai Suburbs’ Swift Transformation From Industrial To A Residential Zone: Wadala

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A Mumbai Suburbs’ swift transformation from industrial to a residential zone: Wadala

An industrial zone primarily, Wadala has undergone a drastic transformation in the past decade. Now an upcoming residential area, this Mumbai suburb is one of the seven islands to form the modern Mumbai. It is located on the Harbour line of Mumbai’s railway network.

Due to its proximity to BKC, large scale land development was inevitable, thus fueling the real estate market. Wadala is bordered by Dadar on the West, Matunga on the Northwest and Sewri on the South. Nestled between south Mumbai and the suburbs, Wadala enjoys strong connectivity by road and rail to most parts of Mumbai.

It has a number of flyovers like the Anik Panjrapol Link Road, Elevated road and Santacruz flyover. Thane, CST and Chembur are connected via the Eastern Highway while the Western Highway connects the locality to Bandra and Borivali. Wadala has the biggest bus depot in Mumbai. Furthermore, the multiple infrastructure initiatives like the monorail, Truck Terminal and the expansion of Highway are in various stages of development.

All this has given rise to residential demand and pushed the property value over the last few years. One of the most populated areas in Mumbai, Wadala has a large number of old temples, churches and dargahs, university campuses, schools, reputed hospitals and is also home to a former world’s largest IMAX dome theater. There are many stores, showrooms and malls around Wadala like the R Mall, High Street Phoenix and Palladium Mall.

Ramesh Nair, COO – business and international director, JLL India says, “A decade ago, property prices at Wadala were as low as Rs 2,800 per sq. ft. and it rose to Rs 14,000 a few years ago.”  As the infrastructure plans are on their way, so are the renowned developers like Ajmera, Dosti Group and Lodha Group among others.

Wadala at present offers one of the highest returns on real estate investments in the region. All the above-mentioned developers have their luxury projects in the area.

Ajmera I-Land introduces Aeon, Zeon and Treon towers with 2, 3 and 4 BHK plush homes. Conceptualized by renowned Singapore based Architects Space Matrix, these spaces with top-of-the-line lifestyle amenities exude exemplary class and finesse. The first residential floor begins at 110 feet from the ground level and offers several modern lifestyle amenities like kid’s pool, swimming pool, gymnasium, club house, open space and landscaped gardens, yoga room, kid’s play area and senior citizen corner.

Dosti Ambrosia is a 36-storey tower nestled in the 18 Acre Township of Dosti Acres. The architecture of the project was undertaken by renowned Hafeez Contractor in the 2 and 3 BHK apartments. It offers an exclusive rooftop swimming pool with 40,000 sq. ft. of landscaped gardens. You will find all modern conveniences like Gymnasium, Tennis Court, Indoor Badminton Court, Yoga and Meditation Room, Elderly Corner, Banquet Hall, Indoor Games, Indoor Badminton Court, Guest Rooms, Restaurant, Grand Entrance Lobby, Kids Play Area, 2 Club Houses and an Amphitheatre.

New Cuffe Parade by Lodha Group offers its residents all the comforts of a world-class lifestyle. The 2 and 3 BHK homes are spread in over 23 acres of land with 15 acres of stunning landscape and 75,000 sq. ft. of the club house. It includes 11 swimming pools, an organic farm, cricket pitch and multiple themed gardens. The buildings are designed by the world renowned WOHA in Singapore and the landscape was planned by Sitetectonix in Singapore.

Also Read: Mumbai to get Building Taller than Burj Khalifa, Road Bigger than Marine Drive

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Rajasthan Government May Hike The Affordable Housing Prices

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Rajasthan Government May Hike The Affordable Housing Prices

The prices of homes under the ambitious Mukhyamantri Jan Awas Yojana are expected to be increased by the state government.

According to the sources in the empowered committee meeting to be held on Monday, a proposal to increase the cost of a low-income group (LIG) and economic weaker section (EWS) houses will be proposed. Urban development and housing (UDH) minister Srichand Kriplani will chair the meeting. The LIG and EWS houses, presently are being constructed on government lands by private builders. These homes are sold at a fixed rate of Rs 1,250 per sq feet; out of which 1000 rupees per sq ft is given by Urban Improvement Trust (UIT), development authorities and local bodies to the builders.

According to provision 4(A) and 4(B), the developers are supposed to build EWS and LIG houses on government land. Seventy-five percent of such government land can be used in building EWS and LIG houses, while the remaining 25% can be sold by the developers. However, since the rates provided by the government are less the developers are not showing interest to construct houses under these categories. Sources said, “In Jaipur, not a single developer has shown interest in constructing houses under this model. The JDA has invited expression of interest (EOI) several times.”

The UDH is leaving no stone unturned to attract the builders in order to achieve the target of constructing 10 lakh houses by 2019. The sources mentioned, “As per the new proposal, the department has proposed to provide Rs 1,600 per sq feet rate to the developers. The land rates have increased subsequently over the period of time; this is why increasing rates has become a need of the hour.”

Sources further added, “The developers are constructing G+3 buildings at present. However, it is not cost-effective. It has been proposed to construct G+2 buildings for LIG and EWS category.”

Also Read: The Impact Of Regulations On The Real Estate Market

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