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Purchase of properties, constructing houses :

Downward interest rates encourage borrowers

The downward trend in interest rates has encouraged borrowers to purchase properties or construct houses. This has resulted in a growth in the real estate sector, said Chief Executive Officer Housing Development Finance Corporation (HDFC) Suresh Amerasekera.

With the liberalization of the Northern and the Eastern provinces over 60 bank branches and financial institutions will be set up in the region. There was a boom in economic activities due to the active financial market, he said.

These institutions catered to the housing needs of the people from the North and East by providing loan facilities, advances and other banking services.

It is important to set up a specialized housing bank in this region to meet the growing demand, he said. “We need to provide loans at concessionary rates to attract middle and low income groups as they are unable to pay the commercial rates.

There is an unmet demand in the housing finance sector, especially in the North and East. We need to harness this potential and a refinancing scheme is important to support our efforts”, he said.

The HDFC disbursed Rs. 570 million in the first half of this year as housing advances. “We have high expectations for the second half.

It is attributed to the accelerated development in the North and East, falling interest rates and the estimated economic growth. We expect the demand for houses and other related activities to rise as the land market is stagnant at present. It was also a problem to raise funds for long term lending”, he said. The banks were reluctant to grant loans for condominium projects earlier. This has changed today. It is attractive to buy now. If interest rates fall to a single digit the demand for the housing sector will increase further, he said.

Chairman, State Mortgage and Investment Bank (SMIB) Timira Rajapakse said that the bank provided housing loans to the value of Rs.400 million for nearly 1,200 customers. These facilities were for direct house and property mortgages and loans against EPF, he said.

The inquiry level has increased by 12 to 15 percent and the disbursement for the past three months had increased. The completion of projects such as Katunayake highway, Norochcholai power plant and the Hambantota Port will be a boost to the housing finance sector, he said.

There will be a good market for houses next month in Colombo and the North as over 6,000 Tamils living abroad were due to attend the Nallur festival.

There will be investments in these areas as well and an upward trend in the housing sector, he said.

The main concern in the sector is the default in payments. Customers generally repay the loan in the first five to six years without a break. Thereafter they tend to default or delay payment after makings around 60 percent of the repayment, he said.

The real estate market is competitive. However, when there are higher interest rates for deposits the lending rates too need to be high. This is a drawback for the housing sector and the rates need to be competitive. More lending will provide an enormous push for the real estate sector, he said.

At a glance:

* Over 60 banks, financial institutions to be set up in NE

* Need for specialized housing bank vital

* Good market for houses in Colombo and the North.

 

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