These are not easy times for home buyers. Despite the festive offers from housing finance companies and developers, experts are pointing out that home buyers are tending to postpone their decisions, drawing cues from the global scene.

Yet, every individual is a latent home buyer and if the right measures are taken - and quickly - the sector can play a key role in boosting the entire economy. Developers point out that the real estate sector contributes substantially to the GDP and the government cannot afford to neglect it; the construction industry has a multiplier effect on several other sectors like steel, cement, white goods, labour and other industries and contributes to both direct and indirect employment.

Developers also contend that while the Reserve Bank of India was quick to step in when the sector was overheated by way of increasing risk weights, it is time it now stepped in to support it. It is important that they reduce these risk weights and bring these to the parameters existing three years ago, they say. The industry also needs support in terms of reduction in the heavy taxes imposed on various counts. External commercial borrowings have been allowed for other industries but not for real estate, which is not fair, they say.

Speaking of high lending rates, R V Verma, executive director, National Housing Bank says that there is a tendency on the part of borrowers to defer buying decisions and lenders too have become risk averse. This risk aversion could manifest itself in higher prudent requirements, or higher standards of lending. This has translated into lower loan to value ratios or funding only 80% of the documented value of the property as against 85% prevailing earlier, requiring the individual to put in more personal funds.

Verma believes that making credit flow into the system can enhance overall confidence. Interest rates should come down in today's market, he points out, and that policy makers must ensure that liquidity flow be maintained with lower interest rates. Hopefully, with inflation coming under control, there is a case to return to lower interest rates.

Liquidity can further be infused with RBI bringing down key policy rates. Only when liquidity becomes available, can we talk of affordability, he explains. This cannot be done in one stroke or artificially. Verma says that there should be a growth impetus, with impulses in various markets like the money market, capital market, gilt market and forex markets, all of which are interlinked.

According to Harsh Roongta, CEO, Apna Loan, the psychological environment that exists is not simply because of interest rates and property rates. The economic uncertainty and job losses have a far larger impact than the rates of property. It will help if property prices soften and stabilise."

However more efforts are needed to infuse liquidity through increased refinance windows and increase confidence levels to enable individuals to get into a loan commitment of 15-20 years, he adds.

Analysts say that banks and housing finance companies should bring their interest rates down to below 10 per cent to make it affordable for buyers. The reluctance to fund both the buyer and the developer has affected the real estate cycle. They also note that direct and indirect taxes amount to about 32 per cent on real estate transactions which add to the cost of the end product. This can be rationalised to help bring down prices. First time home loan borrowers should definitely be given lower interest rates. There should also be a revival of the 80IB section of IT Act allowing for tax incentives for developers building middleclass housing. Affordable housing also will be a big niche that will attract attention.

Analysts say that developers must start selling by lowering their prices. This will stimulate demand. Liquidity can be brought in by lowering the prices which will boost sales while part funds can be procured from banks who should lend to enable developers complete projects. Yadav also points out that the real estate sector has been struck by lack of long-term funding from banks. There is no depth in the debt market for developers and only 12-18 months' funding is available, when in reality, real estate cycles are 24-84 months, he explains.

The Central bank has reduced CRR and repo rates by 250 basis points, which is good enough, he adds. Beyond that, they are looking at flushing liquidity with another 100-150 basis points cut in repo rates. These factors would reduce.

Courtesy:- TOI dtd:- 15^th Nov. 2008