Rate cut will ease liquidity, uplift the sentiment of home buyers, say developers

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Published: May 22, 2020 3:26:21 PM

The repo rate cut will further help banks to lower home loan interest rates, which may get several more fence-sitters onto the market.

RBI rate cut, repo rate, impact of rate cut on home loan borrowers, home loan, Covid-19, lockdown, homebuyers, The rate cuts combined with the further extension of loan moratoriums by 3 months up to August 31, 2020 augurs well for the real estate sector in the times to come.

In a bid to ease liquidity for developers and induce buyers to buy homes in times of Covid-19 and lockdown, the Reserve Bank of India today slashed the repo rate by 40 bps — from 4.40 per cent to 4 per cent now — which was widely hailed by all the stakeholders, including real estate experts and developers.

Industry experts said this is another big step which will ease liquidity for developers as the rate cut will not only send out positive signals, but will also enable banks to lend even more. Thus, the rate cuts combined with the further extension of loan moratoriums by 3 months up to August 31, 2020 augurs well for the real estate sector in the times to come.

“This move is a major booster shot aiming to cushion the impact of COVID-19 on the Indian economy. Beyond doubt, repo rate cuts do uplift the sentiments of home buyers even further. Home loan interest rates have already gone down substantially over the last year, and are presently at an all-time low averaging between 7.15% and 7.8%,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

Interestingly, ANAROCK’s recent survey conducted during the lockdown also highlighted that of the respondents who were previously in no mood to purchase properties and have now become buyers in the lockdown period, a massive 92% cited lower home loan interest rates and a sense of security that physical assets provide during such exigencies.

“The repo rate cut will further help banks to lower home loan interest rates, which may get several more fence-sitters onto the market. Moreover, the repo rate cut may compel banks to reduce the interest rates for FDs even further – this could result in even more people leaning towards housing as a better investment option,” added Puri.

Commenting on the rate cut, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com, said, “With a view to support the economy in general and real estate in particular in the wake of Covid-19, the government has in the recent past made a series of announcements. The RBI decision to further reduce the repo rate to 4% is a major step in that direction. The move will not only help developers but also homebuyers who have been under extreme pressure due to the prolonged lockdown which has impacted their income. This along with the move of extending loan moratorium for another three months will be extremely helpful in lowering the burden for those who are paying EMIs or using credit cards. What needs to be seen is how quickly the banks reflect this change in their respective rates.”

Amit Modi, President-Elect CREDAI Western UP and Director ABA Corp, said, “We wholeheartedly welcome the extension of 3-month moratorium on EMIs till 31 August and this should be applicable right away to bring relief to millions of homebuyers across the nation. We feel that the RBI and the government should proactively make sure that these benefits reach the end consumer, especially now that there is a 40 basis point cut in both in the repo rate and in the cash reserve ratio to ensure sufficient liquidity in the system.”

Developers believe that now the situation for homebuyers might improve as home loan interest rates are expected to come down further. “People who have decided to buy a home during the lockdown period will take a quick decision if banks pass on the benefit. Steps by the RBI are aimed at easing the economy. Affordable housing will benefit the most as the buyers of this segment are very particular about the EMIs. With historically-low EMIs, people will go out to buy and thus increase the demand. Now government has to come out with steps to help the developers working in this segment so that projects can be completed without any hindrance,” said Pradeep Aggarwal, Founder & Chairman, Signature Global, and Chairman, ASSOCHAM – National Council on Real Estate, Housing & Urban Development.

Some developers, however, feel that till the time the RBI makes it mandatory for banks to reduce their lending rates at the same time, these reductions will have negligible impact on the real estate market which is reeling under the COVID-19 crisis.

Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI (National), said, “The latest 40 basis point reduction in the repo rate and the earlier rate revisions by the RBI are a welcome move for sure, which should help the real estate sector borrower in the long run if passed on and implemented by all banks and financial institutions. But, we are seeing that the benefit is not being passed on and the effect on actual lending rate is little or almost negligible.”

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