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Last Updated : | Source: Moneycontrol.com

Repo rate cut to lower homebuyers’ mortgage, developers' working capital cost

May lead to fence sitters returning to the market and augment overall housing demand

For a sector that received a Budget bonanza last week, the Reserve Bank of India’s decision to reduce the repo rate by 25 bps to 6.25 percent is good news for the real estate industry. The move is expected to improve liquidity for developers and bring down the rate of mortgage for homebuyers.

“It is a welcome and unexpectedly positive move. It was much overdue, as this has been the first cut in a long time. It definitely augurs well for the real estate sector,” says Anuj Puri, Chairman, ANAROCK Property Consultants.

The rate reduction will act as a catalyst and provide the much needed impetus to build upon the various initiatives announced in the Union Budget, experts said.


But now it is up to banks to reduce lending rates and ensure that the common man reaps the benefit of this move. This can have a positive impact on real estate sector as mortgages to customers and developer working capital will get cheaper. Further, they feel it will boost the rest of the economy, which can augment housing demand too.

This marks a massive change in RBI’s stance with the more than expected softening in inflation being instrumental in this change.

“We expect that this will cheer the sector with home loans set to be cheaper, kick-start the industry loan cycle and allow some headroom to developers, especially in the residential space. A boost to home buying activity is good news, especially with associated benefits announced in the budget as well,” Anshul Jain, Country Head and Managing Director, Cushman & Wakefield India, said.

Home loan interest rates increased as much as 5-7 percent in the last one year because RBI hiked its repo rate by 50 bps over the same period. In other words, home loans had become a more expensive proposition.

However, the real estate market does not depend only on marginally improved buyer sentiment - there are larger issues that hold the sector hostage right now. Liquidity issues after the non-banking financial companies (NBFC) crisis are a bigger concern. NBFCs and HFCs have seriously curtailed disbursements to developers. Moreover, the repayment capabilities of many developers are also in question, Puri explained.

"This is the perfect follow-up to the Budget speech by Finance Minister Piyush Goyal. This will not just enhance liquidity in the economy but also boost investment and give the economy a positive growth phase," Niranjan Hiranandani - National President, NAREDCO  and Founder and MD, Hiranandani Group, said.

To inject much-needed liquidity in the sector

The cut in repo rate will act as a catalyst in reviving the real estate sector, which was crippled by the financial crunch in the system.

“The banking regulator’s plans of injecting durable liquidity will push money in the banking system, ensuring rise in loans at better rates for the homebuyers as well as developers. This will play a large role in bringing demand and supply in equilibrium. The recently proposed income tax structure and rebate schemes will increase disposable income and hence incremental savings for the middle income group, which will boost sales velocity,” Amit B Wadhwani, co-founder, Sai Estate Consultants Pvt, said.

Buyers of affordable homes to benefit

“With RBI reducing the repo rate after keeping it unchanged in its last two monetary policy reviews, it shows a softer stand towards lending. I am sure banks would surely reduce their lending rates, though marginally, which can boost market sentiment. Also, with the government push towards affordable segment in Budget 2019, with the extension of the income tax rebate to Rs 5 lakh, and today's repo rate cut, I am sure end users would now be more motivated to purchase their homes,” Manoj Gaur, MD, Gaurs Group and Vice President, CREDAI National, said.

The RBI policy cut will be a positive outcome for the real estate sector and for eligible new home borrowers, who can take advantage of the subsidies scheme under Pradhan Mantri Awas Yojana (PMAY).

"This move will be a big boost for affordable housing and aid first time homebuyers. The government has also extended the time-limit of the PMAY scheme to March 31, 2020 for middle-income group buyers," Pradeep Aggarwal, co-Founder and Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM, said.
First Published on Feb 7, 2019 04:41 pm