The measure will boost affordable, mid and luxury housing and spur demand in Tier I and select Tier II cities
In an attempt to spur housing demand, the Reserve Bank of India (RBI) on October 9 decided to rationalise risk weightage on housing loans, making them attractive for both borrowers and lenders.
With this revision, the capital provision requirement for banks will reduce and they will be encouraged to push retail loans, benefiting all housing segments, including the mid and luxury segments.
The move is expected to improve demand in Tier I cities and select Tier II cities where the average price of a housing unit is over a crore.
"Recognising the criticality of the real estate sector in the economic recovery, given its role in employment generation and the inter-linkages with other industries, it has been decided to rationalise the risk weights by linking them only with loan-to-value (LTV) ratio for all new housing loans sanctioned up to March 31, 2022," RBI Governor Shaktikanta Das said.
Such loans shall attract a risk weight of 35 percent where the LTV is less than or equal to 80 percent, and a risk weight of 50 percent where the LTV is more than 80 percent but less than or equal to 90 percent, he said.
RBI, as expected, has kept both the repo rate and reverse repo rates unchanged at 4 percent and 3.35 percent, respectively, while maintaining an accommodative stance. So far, the RBI has slashed rates by 115 basis points this year to support the economy and real estate sector in particular, amid the COVID-19 pandemic.
Of late, the real estate sector has seen some green shoots of demand revival with the Maharashtra government deciding to reduce stamp duty charges and developers offering discounts and freebies ahead of the festive season.
RBI’s October 9 announcement will go a long way in further boosting demand in the sector.RBI’s move positive for the housing sector
Real estate experts have welcomed the move, saying it would make housing loans more affordable.
Anuj Puri, Chairman – ANAROCK Property Consultants, said RBI move will definitely encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets.
Anurag Mathur, CEO, Savills India, sees housing loans getting more affordable eventually, thereby benefiting homebuyers in this sluggish market.
But how does this move benefit the industry? Housing.com group CEO Dhruv Agarwala sees higher credit flow to the real estate sector.How it works?
As per the RBI rules, the housing loan risk weightage is linked to the LTV ratio. So far, all loans above Rs 75 lakh fall under the most risky category. The biggest beneficiary of RBI's move would be the loan borrowers of over Rs 75 lakh and LTV ratio of not more than 80 percent.
Earlier, a property worth Rs 2 crore and a home loan of over Rs 75 lakh would fall under the 50 percent risk weightage category. Now, even if a homebuyer were to take a housing loan of Rs 1.6 crore, he will still fall under the 35 percent risk weightage bucket.
Experts told Moneycontrol that this is expected to spur demand across housing segments -- affordable, mid and higher income categories -- in Tier 1 cities and select Tier 2 cities, where the average price of a housing unit is around Rs 1 crore.
“Instead of taking a direct targeted approach towards across the board reduction in interest rates, RBI has taken a focused step towards retail housing loans to spur demand via reduction of mortgage rates," Anckur Srivasttava of GenReal Advisers said.
However, Srivasttava feels that it is important that banks pass on the reduced risk weightage benefit to eligible existing borrowers too.
As far as developers are concerned, they may witness increased sales due to more homebuyers coming forward to purchase properties.Homebuyers across all price-points will be able to access additional capitalExperts like Anshuman Magazine, Chairman and CEO - CBRE India, South East Asia, Middle East & Africa; Shishir Baijal, Chairman and Managing Director, Knight Frank; Ramesh Nair, CEO & Country Head, JLL; Niranjan Hiranandani, President, NAREDCO and ASSOCHAM; Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI (National); feel that RBI's decision to rationalise the risk weightage on home loans would boost ongoing projects and inventory pick-up of luxury developers.
Kamal Khetan, Chairman and Managing Director, Sunteck Realty, expects RBI to extend the measure beyond March 2022 in the coming days.
However, all experts see rosy days ahead. Satish Magar, President, CREDAI National, said thought the move to extend co-lending scheme to non-banking housing companies (NBFCs) and housing finance companies (HFCs) may infuse additional liquidity, the strict due diligence norms and eligibility criteria will not benefit the realty sector.