"Indians should work for 60 hours a week for the next 2-3 years to revive economy"- Narayan Murthy. "Upto 50% of salary will be cut"-Mukesh Ambani. The thundering bolts from the towering figures of Indian Industry, reminds me of a historic day, November 24, 1981, when devastating fast bowlers of all time - Andy Roberts, Michael Holding, Joel Garner, Malcolm Marshal and Collin Croft - took field together. They must have sent chills down the spines of even spectators!!
The most respected professional in the country, advocates for extra hours of efforts by employees and the richest man in India, announced pay cuts upto 50% in his company, India's largest. Message is clear, 'Work More, For Less'!
80% of the Home Buyers are salaried, and 'Work More, For Less' diktat has dashed the hopes of millions, of owning a dream home.
Disregarding the precarious situation of developers, all and sundry are preaching through the latest fad of webinars, about what developers need to do to help Home Buyers. This is like 'expecting a lame, help the blind cross the road at a junction without traffic signals'.
But there's someone who CAN and MUST help Home Buyers at this unprecedented critical juncture of their life. HOME LOAN LENDERS. They have an obligation to help the Indian middle class realise their dream and help the nation to achieve HOUSING FOR ALL.
Take an example of a family, earning monthly salary of Rs.1,00,000/-, before pay cut was announced. Under the present lending norms, the family will get a loan amount of Rs.71,00,000/- for 20 years @8% p.a. interest. With this loan amount they can buy a property of gross value worth Rs.85,00,000/-.
Under 'Work More, For Less' scenario, let's assume the salary of the family is Rs.70,000/- per month, now reduced by 30%. Under the present lending norms, the family will get a loan amount of Rs.50,00,000/- for 20 years @8% p.a. interest. With this loan amount they can buy a property of gross value worth Rs.60,00,000/- instead of Rs.85,00,000/ which was possible when salary was Rs.1,00,000/-.
Consequences are grave to all stakeholders. Firstly, the Home Buyer will have to downsize his dream to a smaller home. Secondly, as a result, the Home Loan Lender's value of assets in the books will reduce drastically. Thirdly, the developer will be saddled with unsold inventory of larger homes. All three will suffer along with the economy. This will not help the nation.
Yes, as I said earlier, Home Loan Lenders can certainly help.
ROI (Rate Of Interest):
Reduce interest rates to the levels of year 2003-04 i.e., @6% p.a. which will bring down the EMI and increase the loan amount.
TENURE:
Working age has increased along with increased life expectancy. Make 30 year loan a norm with an age limit of 75 years. This will make the Home Buyer eligible for higher loan amount at lesser rate of EMI. Majority of the loans are pre-closed anyway.
Introduce 40 years loan to encourage youngsters to buy a home early in life. Longer the tenure, lesser the EMI and higher the loan amount.
LTV(Loan To Value ratio):
During the lockdown, many have exhausted their savings and many have lost their savings in stock market crash. A higher LTV will increase the loan amount and bring down the self contribution towards purchase of a home. Make 90% LTV a norm, on the gross value of the home instead of prevailing 90% LTV on the agreement value.
FOIR (Fixed Obligation to Income Ratio):
Most of the middle class families have second income in cash to take care of day to day needs. Moreover, Indian middle class are big savers. Increase FOIR to 70%, instead of prevailing 60%, which will enhance the loan eligibility of the Home Buyer.
See how these four initiatives by Home Loan Lenders will help the family who is earning a reduced monthly income of Rs.70,000/- after pay cut.
The family will get a loan amount of Rs. 81,00,000/- with reduced ROI of 6%, increased tenure of 30 years and increased FOIR of 70%. Further, with LTV of 90% on gross value of home, the home buyer can buy property of gross value worth Rs.90,00,000/-. Moreover, self contribution will also come down drastically and his dream of owning a home of his choice is fulfilled.
If the Home Loan Lenders heed to our humble pleas, it will be all the way, a WIN-WIN-WIN situation for BUYER-LENDER-DEVELOPER and will ensure survival with minimum damage.
Very good article, must reach Home Loan lenders..