This is the third time in this year now that the Reserve Bank of India (RBI) governor Raghuram Rajan had announced a cut in a repo rate by 25 basis points to 7.25 per cent from 7.5 per cent. In his speech today, Rajan said, "Banks have started passing through some of the past rate cuts into their lending rates.” Will this help in boosting the sentiments in the sluggish real estate MARKET? How this will impact the home-buyers and developers? Let’s find out from industry stalwarts –
Impact on buyers
With the rate cut, banks will now be able to offer loans at more attractive rates. Cheaper loans for homebuyers will prompt a renewed interest in residential property purchase from end users and INVESTORS.
“Banks should also revise the base rate, which would benefit old home loan borrowers who are currently PAYING higher interest rates than new borrowers would. I feel that this would be an important move by banks and help them contain client attrition,” says Anuj Puri, chairman & country head, JLL India.
Home buyers can now go back to their lender and ask them to trim EMI component or reduce your loan tenure.
“If the benefits are passed to homebuyers, this can lift the sentiment and encourage more corporate and retail consumers to opt for loans,” says Rajesh Jain, MANAGING director, Neumec Group.
However, Sanjay Dutt, executive MANAGING director, South Asia, Cushman & Wakefield says, “The demand from end-users may take a bit longer to actually transform to active buying, but home buyers’ interest may be rekindled and inquiries may increase in the short-term as buyers may begin anticipating lower interest rates.”
As many as 21 banks including four public sector players have reduced their base rate or the minimum lending rate in the range of 0.1 - 0.5 percent till April 15th this year, following consecutive rate cuts by RBI in January and March. After this rate cut, RBI has again asked the banks to lower their lending rates to help the borrowers save more.
How this will impact the developers?
The cost of funding for real estate developers should also reduce marginally. “Any kind of relief to developers is important at this stage, since they have been burdened with the ever-increasing development and borrowing costs since last 3-4 years while at the same time being under pressure to keep SALE costs rational,” says Chitnis.
The move would bring in more liquidity in the MARKET which in turn would mean a boost to the real estate sector as well, says R.K. Panpalia, MD, Wave Infratech.
Impact on the Industry
Industry experts say that the rate cut was very much on the cards as fiscal deficit showed signs of improvement and inflation been kept under control. “The output has been on a four month rise which propelled this decision further. After the last RBI policy, the demand in the real estate sector had kick started with banks reducing their lending rates. With a further reduction in repo rate now, the demand graph will see a positive growth in the upcoming months,” says Kushagr Ansal, director, Ansal Housing.
A healthy monsoon forecast will help in curtailing the prices but the REPORT from Science & Tech ministry is already showing a delay and shortfall. At the same time, Rupee has been recently depreciating quite a lot and increased service tax now in effect is signalling warning signs for the upcoming months. It will be now wise for the banks to pass on the benefit to the customers so as to maintain momentum in near future.
Hailing the move, Deepak Kapoor, president CREDAI – Western U.P. adds, “With weakening rupee and core sector index shrinking to 0.4 percent in the month of April, this move by RBI shows aggressive decision making which will be very crucial for the upcoming months.”
With this, it is evident that the actual impact of the rates cut can only be seen can only when banks will pass this on to homebuyers in terms of reducing the home loan interest rates. “Unless this happens, consumption will remain subdued and consequently the investment cycle will not pick up,” shares Rohit Poddar, MANAGING director, Poddar Developers.