Given the sops announced by the Finance Minister in the Interim Budget the previous week, February 7 brought an additional surprise to the home buyers and builders. Yesterday, the RBI announced a reduction in the Repo Rate by 25 basis points, from the existing 6.50% to 6.25%. It is indeed good news for the Real Estate Sector.
The action thus, taken is likely to minimize the mortgage rate for the home buyers as well as the liquidity for the builders. In the words of the Chairman of India’s leading property consultant, this move was much awaited, by the industry. It has been several years that the Repo Rate has been cut, which was due over the industry. This move is unexpected and one to be welcomed.
This reduction in the rate will accelerate the execution of the various announcements in this Budget, according to the experts. A lot now depends on the banks for this decision of RBI to revive the Indian Real Estate Sector.
Will the Common Man Benefit?
The banks are required to lower their lending rates, only then will the buyers, benefit. Less expensive mortgage rates and working capital for the buyers and developers, respectively. The other areas of the Indian economy will get a leg-up, thereby increasing the overall housing demand. RBI’s decision to cut the Repo Rate reflects a remarkable change in its attitude.
According to experts, home loans are anticipated to become less costly, thereby allowing the developers some space to breathe. Home buying will witness an uplift on the back of the announcements made by the Finance Minister in the latest Budget.
The interest rates of home loans hiked by 5% to 7% during the previous year making them an expensive proposition for the buyers. The reason behind this increase is the escalation of the Repo Rate by 50 basis points in that same period.
Apart from the slight improvement in the sentiment of buyers, the liquidity crisis stands as a major issue in keeping the realty sector captive at present. The payments to developers have been trimmed considerably by the Non-Banking Financial Companies and HFCs. Most of the developers are unable to repay.
The reduction in the Repo Rate following the Union Budget concessions by the Finance Minister will help in enhancing the liquidity as well as encourage investment. This will bring positivity to the Indian economy, as analyzed by the National President of NAREDCO.
A revival of the Real Estate Sector
The Real Estate sector that previously crippled due to the financial crunch, will now recover at a rapid pace as a result of the curtailed Repo Rate.
The income tax rebate schemes proposed in the recent Budget will enhance the disposable income for the middle-income group, thereby increasing their incremental savings prompting them to purchase homes. This will result in the escalation of the sales velocity. Besides, the banking regulator plans of inserting durable liquidity will allow better rates to avail home loans, for both the developers and home buyers. Supply and demand will reach an equilibrium.
Advantages for the Takers of Affordable Homes
The decrease in Repo Rate this year by RBI after having kept unchanged for its previous 2 monetary policy reviews, will cause the banks to soften their lending rates through marginal reduction, consequently stimulating the market sentiment. Moreover, the Government is encouraging the affordable category during the Budget this year by extending the rebate in Income Tax to 5 lakh rupees as well as the reduced Repo Rate. These measures will prompt the end-users to buy homes, as believed by the Vice President, CREDAI.
The Real Estate Sector will benefit from RBI’s policy cut. The new home loan borrowers who are eligible will also reap further advantage in addition to that of the PMAY (Pradhan Mantri Awas Yojana) subsidies.
Those buying a home for the first time as well as the affordable housing category will get encouraged by this decision of RBI to curtail the Repo Rate. The period for the middle-income buyers to avail the benefits of the PMAY scheme has been stretched till the 31st March of the following year.
Housing Sales Expected to Improve
RBI’s decision to diminish the Repo Rate on the previous Friday was welcomed by the Real Estate industry that is hit by liquidity crisis with the hope of the industry’s recovery following the sops announced by the Interim Budget.
The Repo Rate was slashed by the Governor of RBI, by 25 basis points from 6.50% to 6.25%. The realty sector had been longing for this move that was much needed as it has been struggling since the IL&FS crisis, recently.
In the words of the Managing Director and Chairman of a renowned global property consultancy, banks are anticipated to transfer the advantages of the subsequently altered rates of home loans to the borrowers. This will strengthen the purchase decisions of the end-users.
As opined by experts, the Repo Rate cut will have an effect on the interest rates of home loans and reduce EMIs, which in turn will improve the buyer sentiments needed for the growth of housing sales across India. The move is likely to boost investment and liquidity in the country’s economy. An upward drift of new housing project launches and residential sales in the last year, active purchase decisions are being made by serious buyers.
An improved economic scenario following the reduction in the Repo Rate will consequently push in new launches as well as more housing sales, thereby inducing positivity in the Real Estate market. According to some experts, the demand for properties will be driven by the relative increase in the investment. The buyers will gain more confidence due to the rate cut accompanying the sops offered in the Budget.
With the Budget and the reduction in Repo Rate, things appear to work in favour of the home buyers. They will be able to reap the benefit of this move only if the banks’ willing pass on the privileges to them amidst such a disturbed environment caused by tight liquidity.
To decide a cut in the Repo Rate was not expected from RBI since no reduction has been made for a long period of time, which is the due of the Real Estate Sector. The Budget in addition to it is a win-win situation for both developers and home buyers.
Besides, the RBI has also decided to link bank risk weights on the exposure of NBFC to the ranking of such devices, which in turn will provide better management of NBFCs. Thus, the flow of bank credit to the Non-Banking Financial Companies will improve. As expected, the union of investment companies, loan companies and AFCs (Asset Finance Companies) into a single class apart from the recovery of NBFC crisis, would fast trace the consolidation process in this field.
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