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RBI rate cut expected to improve homebuyers' affordability, stimulate housing demand

Real gains for the rate cut can only be realised if banks pass on the benefits to borrowers. The apex bank will need to ensure that this actually happens at the ground leve, feel experts.

RBI's decision to cut interest rates for the third time this year by 25 basis points has been welcomed by the real estate sector. It is expected to lead to lower home loan EMIs and improve homebuyers' affordability.

But the RBI's key challenge will be to ensure that banks pass on the benefits of these rate cuts to borrowers and ease the liquidity crunch impacting the sector at the ground level, said real estate experts.

"This repo rate cut is likely to have a direct impact on the real estate sector, provided the banks, in turn, transmit the same by a corresponding reduction in lending rates. It has been observed that, despite 50 bps reduction in repo rates by RBI in the previous two reviews, the mortgage interest rate has remained sticky. As a result, the required benefit of the rate cut has not reached the homebuyers," said Ramesh Nair, CEO & Country Head, JLL India.

"Due to rising NPAs and the ongoing NBFC crisis, things look quite bleak at the moment. The reason why most banks are not really able to pass on the benefits of RBI’s rate cuts is that their deposit rates are still very high. This ultimately makes reducing interest rates to borrowers unfeasible. Nevertheless, this rate cut will only have any really significant impact on the housing market if and when banks reduce their lending rates to homebuyers," said Anuj Puri, Chairman, ANAROCK Property Consultants.

Niranjan Hiranandani- Naredco President and senior vice president of Assocham said that the rate cut is the need of the hour but it needs to be seen how soon banks pass on the benefit to the consumers.


“We are happy with the rate cut. Buyers who are coming back after the GST rate cut announcement, on under-construction and affordable properties, would be encouraged further with the reduction in the bank rates. However we feel that it is basically not enough to address the issue faced by all the other industries. It is not about 'Dil Maange More', but more about the need of the hour," he said.

The risk profiling of customers by banks has gone up and one needs to understand how banks would pass on the benefit of the rate cut to the ultimate customer, he said.

"Liquidity is very low as the borrowing cost is still very high. This liquidity crisis is taking a toll on the health of the companies and further inflicting financial damage thereby affecting the credit rating of companies and industries. Unless things are passed down, the NPAs of the banks would pile up in the near future," said Hiranandani.

The RBI policy rate cut will encourage eligible new home borrowers to take advantage of the subsidies scheme under PMAY. “The move will be a big boost for affordable housing segment and help first time home buyers,” said Pradeep Aggarwal, Co-Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM.

The rate cut is also expected to benefit cash-starved NBFCs. "The first rate cut in the newly elected government's regime is certainly a welcome step, especially for the real estate sector. NBFCs will definitely benefit from inflow of capital which will in turn benefit developers as well as home-buyers. NBFCs have been facing a liquidity crisis and this has negatively impacted their loans to real estate, including construction finance," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
Vandana Ramnani
first published: Jun 6, 2019 04:23 pm

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