Today’s newspapers (23 April 2010) report that ICICI Bank will follow HDFC Bank and reintroduce teaser rates for home loans. HDFC also recently (16 April 2010) reintroduced teaser rates as SBI continued its teaser rate scheme. I also read a couple of days back that SBI has increased its teaser rate scheme till April 2011.
Overall, teaser rates are making a strong comeback. RBI had warned against these loans and banks had closed (except SBI) these schemes in February. I guess HDFC saw SBI gain markets in home loan segment and decided to relaunch followed by ICICI Bank. On this rate other banks may soon follow as well.
All this is pretty disappointing. In this monetary policy there were wide expectations that RBI would put some restrictions on home loans via some provisions etc. But nothing came in this policy.
For the first time, RBI discussed developments in the housing markets in its macroeconomic report. This report is released a day before monetary policy. So markets were all the more sure that something would come up in monetary policy.
In the report RBI said:
Another important segment of asset prices is the residential housing segment that has important implications for the behaviour of general prices and overall macroeconomic and financial stability. There has been a general upward pressure on housing prices in the recent period, which broadly co-terminates with the rise in stock prices, thus, indicating generalised asset price pressures (Chart V.11a and b).
RBI also recently released a report which will help develop a housing price index in India:
The Reserve Bank of India has, today placed on its website, the Report of the Expert Group on Asset Price Monitoring System.
The main recommendations of the Expert Group are:
- For monitoring purpose, Reserve Bank of India needs to track both sale/resale price index as well as the rent index of real estate prices on a regular basis.
- Real estate property price data can be collected in the form of sale/resale price directly from scheduled banks (including both commercial and urban cooperative banks) and selected housing finance companies. Presumably, transaction level data are available in electronic form with these organizations.
- House price data can be collected from top 13 centres: Greater Mumbai, Chennai, NCR Delhi, Bangalore, Hyderabad, Kolkata, Pune, Jaipur, Greater Chandigarh, Ahmedabad, Lucknow, Bhopal and Bhubaneswar.
- Considering the practical difficulty of collection of house rent data, the Group recommends using official data on house rent index of Consumer Price Index (Urban), being compiled by Central Statistical Organisation.
- The Group recommends compiling real estate price index on quarterly intervals.
- As the data are being sourced from the banks and select housing finance companies, survey schedule is basically a return prescribed for the said purpose. The proposed return includes variables like type of property (including both real estate and commercial), address, type of transaction, valuation price of the property, purchase price of property and loan amount taken from the bank other than the information on certain characteristics of the borrower viz., gender, employment, monthly income, etc.
- Price index may be compiled based on Laspeyre’s index method with financial year 2009-10 as the base. The Group felt necessary to supplement the bank data through a survey conducted annually so as to ensure robustness of the data available with the banking system.
This was a great step. After Riksbank’s moves to track housing markets in Sweden, RBI also decided to learn the lessons from the crisis.
However, we haven’t seen any policy actions against these developments. Housing prices have moved much higher than highs of 2008 and easy bank financing is furthering the cause of various housing companies. Just a quick scan of the various housing markets websites conveys the sharp rise in prices. Areas like Navi Mumbai are quoting prices never heard before.
The affordable housing promises have been forgotten and some builders who still remembered quote affordable housing price at Rs 30 lakh! Well, how many Indians have that kind of money? It is hightime policymakers act.