BANKS

AND THE
REAL ESTATE
PREPARED BY:
Siddhartha Bhadoriya
Deepak Ojha
Shushrut
B. Gopal
Hemang Khandelwal
Ravish Ranjan

AP15163
AP15164
AP15165
AP15166
AP15167
AP15168

DEFINATIONS:
Banks
Real estate

REAL ESTATE SECTOR IN

INDIA
Fourth largest sector in terms of FDI inflows
Indias Real Estate sectors market size is expected
to increase1.92 times by 2020.
Approximately 4% of GDP

SEGMENTS IN THE INDIAN REAL

ESTATE SECTOR
RESIDENTIAL

COMMERCIAL
Real estate
sector
RETAIL

HOSPITIALITY

KEY DRIVERS FOR REAL ESTATE

GROWTH IN INDIA
Demand
Increasing Investments
Attractive opportunities
Policy Support

TOP REAL ESTATE COMPANIES:

o
o
o
o
o
o
o
o
o
o
o

Tata Housing
Godrej
DSK
DLF
Unitech
Parsvanath
Sobha Developers,
Omaxe
HDIL
Indiabulls
Mahindra Gesco , etc.

EXAMPLE:NEW HOME PURCHASERS

Average age is 31 years
15 years back it was 42 years
Earlier, it was 55 years.
RESONS:

Due to IT boom, young people got very high salaries,

also Dual income, nuclear families.
Mortgage (Interest) rates lowered:
In 1995 it was 17 %, in 1998 it was 14 %
now approximately 9.75 %
Income Tax concessions :
Rs 2 lakhs on interest and on principal amount

For a Home Loan

of Rs. 40 Lakhs of 20 years duration

EMI = Rs. 37,941 @ 9.75 % interest

rate

EMI = Rs. 49,740 @ 14 % interest

rate

EMI = 58,672 @ 17 %

REAL ESTATE BUSINESS LOANS:

TRENDS OF REAL ESTATE FINANCING

The days of purely relationship borrowing are gone, although many

commercial banks still rely heavily on relationship based
marketing .

Today we continue to see an increasing prevalence of securitizing all

types of mortgages

Securitization is the process of converting an individual mortgage

into a security, often is pooled form where many similar mortgages
are combined, that is then sold to investors in secondary markets

MORTGAGE LOANS
Used by purchasers of real property to raise capital to buy
real estate, the loan is "secured" on the borrower's
property.
Types of Mortgage Loans
1. Fixed Rate
2. Floating Rate

PROMISSORY NOTE
A

promissory note is a written document

containing the contract terms between the
borrower and the lender.

CLAUSES CONTAINED IN THE

NOTE

Loan Amount
Method of Repayment
Interest Rate
Term
Acceleration Clause
Prepayment Provisions
Late Payment Provisions
Due on Sale Clause
Escrow for Property Taxes/ Insurance
Maintenance of Property
Default
Loan Guarantees

BREAK UP OF EMIS FOR LOANS

0 1 2 3

Time (years)
4 5 6 7 8 9

Principal
component
Interest
component

How Interest Rates are Determined?

Supply

and Demand
Inflation
Governments Role

CAUSES OF BOOM IN REAL ESTATE

SECTOR

Booming economy.
Urbanization.
Entry of professional players with expertise in real estate.
Development of large captive units of major players like
HSBC, bank of America, standard chartered etc.

MEASURES BY GOVERNMENT ON
REAL ESTATE FINANCING

Relaxation of legal rules.

100 % FDI in real estate sector.
Land acquisition bill.
Housing for all scheme.

RISKS..
Changes in policies
Increase in interest rate
Economic downturn

CONCLUSION
Banks interest rate inversely proportional to
real estate growth
Real estate loans are major part of total bank
loans.