DLF, Unitech Fall as Central Bank Proposes to Tighten Home-Loan Rules
DLF Ltd. and Unitech Ltd., India’s two largest real-estate developers, fell in Mumbai after the central bank proposed tightening home loan norms as prices in cities surpassed levels reached before the financial crisis.
DLF dropped 3.2 percent to 349.80 rupees as of 1:39 p.m. local time, while Unitech slumped 3.3 percent and a property stocks index lost 2.6 percent. The central bank plans to cap loan-to-value ratios at 80 percent, raise the risk weighting on larger housing loans and increase some provisioning requirements, according to a statement in Mumbai.
“This will make it harder for home buyers to get loans,” Adhidev Chattopadhyay, a real-estate analyst at Edelweiss Capital Ltd. in Mumbai, said by telephone today. “The sale of new homes is the biggest concern.”
The Reserve Bank of India joins central banks across Asia in seeking to prevent a steep rally in property prices fuelled by debt. China last month raised interest rates and boosted reserve requirements for the biggest lenders to curb inflation, while Hong Kong and Singapore have taken steps including raising down-payment ratios for home loans since August.
India’s commercial banks will have to increase the risk weighting on home loans of 7.5 million rupees ($169,000) or more to 125 percent, the Reserve Bank of India said today. The previous risk weighting ranged from 75 percent to 100 percent, it said.
Lenders will also have to increase provisions for so-called teaser loans, which offer lower borrowing costs for the first few years, to 2 percent, the central bank said.
‘Short-Sighted’
“Residential property prices in metropolitan cities have gone beyond the pre-crisis peak level,” while equities are close to a record and gold prices are at an all-time high, the RBI said.
Real-estate companies’ sales may be curbed since many of them have begun to focus on the residential market following excess supply in the commercial property market, Chattopadhyay said today.
The bank’s views on the real-estate market are “short- sighted,” DLF Executive Director Rajeev Talwar said today.
“I do not see any asset bubble in the housing market,” he said in an interview with the Bloomberg-UTV television channel. Still, the RBI “should have increased credit supply for the housing sector so that the rates get moderated.”
The Reserve Bank in October 2009 asked lenders to increase the funds set aside for commercial real-estate loans to 1 percent from 0.4 percent.
The Bombay Stock Exchange Realty Index fell 2.6 percent today. The gauge, which tracks 13 property stocks, has declined 4.8 percent in the last 12 months, compared with a 28 percent advance in the benchmark Sensitive Index.
To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net
To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net
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