Loans for low-cost housing are set to get cheaper as housing finance companies have been given easier access to overseas funding.
The National Housing Bank (NHB) is drafting guidelines to ensure a cap on interest rates for affordable housing loans, which will be financed through overseas funding, according to R.V. Verma, Chairman and Managing Director.
Draft guidelines
“The interest rates under the affordable housing segment will be closely monitored. They will work out to be lower than the normal lending rates. The guidelines on the cap on interest rates will be out in a week’s time,” Verma said.
To ensure that the benefits of raising cheaper overseas funds are transmitted to the end consumer, NHB would be monitoring the loan pricing and property prices offered by the HFCs and developers respectively.
“We will have a monitoring and reporting mechanism on the interest rates charged on loans given for affordable housing from the money raised via the ECB route,” Verma added.
Since December, NHB has received applications worth close to $1 billion from different HFCs including LIC Housing Finance, HDFC and Dewan Housing Finance Ltd. In addition, four developers have cumulatively applied to raise funds aggregating to $100 million. Funds raised through ECB could be used for either developing low-cost housing projects or for providing loans up to Rs 25 lakh to individuals for buying units with a price tag of Rs 30 lakh or less, RBI had said in December last year.
LIC Housing Finance and HDFC have applied for $55 million and $500 million respectively and are awaiting the RBI’s approval.
Retail demand
According to V.K. Sharma, CEO, LIC Housing Finance, “Retail demand is good in the affordable housing segment, especially in tier-II and tier-III cities. After the RBI’s approval, we will negotiate with the international lenders if we can get lower or even close to the domestic rates.”
Keki Mistry, Chief Executive Officer, HDFC, said, “Despite the likelihood of interest rates softening in the domestic sector, tapping the ECB route will be good as the withholding tax rates overseas are low and the hedging costs will also be less. Effectively, borrowers will be able to raise funds at cheaper rates.”