When the governor of Reserve Bank of India (RBI), Raghuram Rajan, announced a 25 basis points cut in repo rates, which is yet to translate into any significant rate cut in home loan interest rates, the general feeling was that it was too little, too late. However, few developers have maintained that a drop in interest rates may well trigger a rise in consumer sentiment but not significantly impact the buying decision.
So what can banks do? Just wait around for the RBI to cut rates which today are predicted to drop and tomorrow to hold their levels? Why is the Indian home buyer hanging on to the sidelines waiting for a trigger? Banks have historically made old consumers pay more or for longer periods if home loan interest rates have gone up. But when rates drop, the beneficiaries have been only new customers. So this time consumers have decided to wait till the interest rates actually drop to attractive levels. If banks assure consumers that irrespective of whenever they took the loan, they can avail of lower rates when interest drops there may be a move in the right direction.
Real estate regulator:
Consumers have waited helplessly when the industry giants delayed projects and offered small or negligible penalty rates that too often delayed. In many cases force majure is invoked because authorities delayed approvals or some other unforeseeable factor prevented the completion of the project. A speedy passage of the Real Estate Regulatory Bill with local authorities as well as developers under its ambit would help change the scenario.
No speculative launches:
Consumers have been searching for smaller homes that fit their budget. PropIndex (Oct-Dec 2014), the India Apartment Index by Magicbricks, clearly showed that 1BHK units or houses worth Rs 20-60 lakh were in demand. However, the market is skewed towards larger 3 and 4BHK units. Instead of speculative development, Indian developers and the market would benefit from better market research by developers before projects are launched.
Rational market rates:
The industry is holding on to the rates at which properties have been launched or the last hike stands. However, investors have started buckling under the strain of a complete stoppage of sales for over a year now. The difference between listed prices and transacted values are growing. This bodes ill for markets and does not restore consumer confidence in the industry.
The ones who can afford to buy property, don’t dare to put it on rent. Weak rental laws have impacted consumer confidence. The Model Rent Act, enacted a few years ago but not implemented, would be a good way to trigger a rise in consumer confidence and therefore raise sentiments.