BANKS AND THE

REAL ESTATEPREPARED BY:

Siddhartha Bhadoriya AP15163Deepak Ojha AP15164Shushrut AP15165B. Gopal AP15166Hemang Khandelwal AP15167Ravish Ranjan AP15168

DEFINATIONS:

BanksReal estate

REAL ESTATE SECTOR IN INDIA

Fourth largest sector in terms of FDI inflows India’s Real Estate sector’s market size is expected

to increase1.92 times by 2020. Approximately 4% of GDP

SEGMENTS IN THE INDIAN REAL ESTATE SECTOR

Real estate sector

RESIDENTIAL

COMMERCIAL

RETAIL

HOSPITIALITY

KEY DRIVERS FOR REAL ESTATE GROWTH IN INDIA

Demand Increasing Investments Attractive opportunities Policy Support

TOP REAL ESTATE COMPANIES:

o Tata Housingo Godrejo DSKo DLFo Unitecho Parsvanatho Sobha Developers,o Omaxeo HDILo Indiabullso Mahindra Gesco , etc.

EXAMPLE:NEW HOME PURCHASERSAverage age is 31 years15 years back it was 42 yearsEarlier, 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

Time (years) 0 1 2 3 4 5 6 7 8 9

Principal component

Interest component

How Interest Rates are Determined?

Supply and DemandInflationGovernment’s 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.