The RBI rate reduction will enhance the affordability of home purchasers – Latest Update

By Abhay Harish Shah, Realty Quarter

For the third time this year, the real estate sector has welcomed RBI’s decision to lower interest rates by 25 basis points. It is expected to lead to a decrease in home loan EMIs and increase affordability for homebuyers.

The main challenge, however, is for RBI to ensure that the advantages of these rates are transferred to the borrowers and facilitate the liquidity crunch that affects the industry on the ground.

“This repo-rate decrease is expected to have a direct effect on the actual property industry if the banks convey the same rate decrease as they have in turn. It was noted that the rate of mortgage interest stayed sticky in both the past two reviews despite a 50bps decline in the RBI repo-rate. This has prevented homebuyers from benefiting from the rate cut,” said Ramesh Nair, CEO & Country Head of JLL India.

“The current situation is rather dreadful as a result of the rise in NPA and NBFC crisis. The reason most banks are not actually capable of passing the advantages of the prices reduced by RBI is that they still pay very much deposit prices, which eventually makes interest rate reductions unfeasible for borrowers.

However, this rate reduction will have an important effect on the housing market only when banks decrease their lending rates to homebuyers,” said Anuj Puri, Chairman of ANAROCK Property consultants.

Niranjan Hiranandani- Naredco Chairman and Assocham Senior Vice-Chairman asserted that the price decrease takes an hour, but that the time necessary for banks to transfer customer advantages is evident.

Further, he said, “This rate cut is satisfying us. The decrease of bank rates would further encourage buyers who have been returning after the GST rate decrease announcement, on under-construction and affordable properties. Nevertheless, we think that the problem facing all the other sectors is basically not enough. It isn’t about ‘Dil Maange More,’ but it’s about time.

Banks have increased their risk profiling for clients and it needs to be understood how banks will transfer the benefits of the rate cut to the end client, he said.

“Liquidity is low, as the borrowing costs are still extremely high and this liquidity crisis affects the health of businesses and causes further financial damage that is affecting companies and industries credit ratings. If not, banks NPAs will rise in the near future,” said Hiranandani.

The policy rate decrease for RBI will enhance the use of PMAY subsidies by fresh eligible home borrowers. This move will provide an important stimulus for the affordable housing industry and will help first time home buyers,” said Pradeep Aggarwal, Co-Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM.

The rate reduction should also benefit cash-starved NBFCs.

“NBFCs will certainly profit from a capital influx, which will in turn benefit developers and home buyers, as the liquidity crises have hit NBFCs and their loans, including building financing has been adversely affected,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.