RBI move to encourage homebuyers, give a boost to real estate

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Updated: Oct 09, 2020 9:12 PM

The RBI kept the repo rate unchanged in its October policy review, but announced some measures that are likely to encourage homebuyers and give a boost to lending and real estate.

Rationalising risk weightage on home loans and linking it to the LTV ratio will effectively result in higher credit flow to the real estate sector.

The RBI kept the repo rate unchanged in its October policy review on Friday, but announced some measures that are likely to encourage homebuyers and give a boost to lending and, thus, real estate.

Industry experts say with real estate demand gradually seeing some green shoots of revival, especially in the wake of reduced stamp duty charges (in Maharashtra) and developers’ discounts and freebies, reduced repo rates would have given an added boost just before the upcoming festive season. However, with consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 140 basis points in 2020, today’s move was expected.

“On a positive note, the RBI move to rationalize risk weightage on home loans and linking housing loans risks only to loan-to-value is a welcome move. This announcement, thus, will definitely encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets. In the current challenging times, banks have been reluctant to lend owing to risks amidst the pandemic while buyers have remained financially stressed,” says Anuj Puri, Chairman, ANAROCK Property Consultants.

Experts believe that the rationalization of risk weights for individual housing loans with LTV ratios, irrespective of the loan amount, for all fresh home loans sanctioned till March 31, 2022 should help improve credit flow and hopefully bring down lending rates in the high value housing loan segment.

Anshuman Magazine, Chairman & CEO, CBRE India, South East Asia, Middle East & Africa, says, “The RBI decision to relax LTV guidelines and rationalize risk weights for home loans will further encourage homebuyers, while extending the scope of the co-origination scheme to all NBFCs will improve the flow of credit in the economy. We are hopeful that these measures will strengthen recovery in residential demand and support construction activity as well.”

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com, says, “Rationalising risk weightage on home loans and linking it to the LTV ratio will effectively result in higher credit flow to the real estate sector, which is positive news for the sector. Also, the hike in credit limit for retail exposure by a single lending entity from Rs 5 crore to Rs 7.5 crore is a welcome move that will immensely help both retail as well as small businesses.”

Developers say with inflation remaining above the targeted level, status quo on policy was expected. However, it is heartening to note that despite not much room available for lowering of rates, the apex bank has ensured some relief for the real estate sector.

Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI (National), says, “The lowering of risk weightage on home loans and linking it to LTV only will ensure more credit to customers and thereby to the sector. Also, by maintaining its accommodative policy stance, the RBI has indicated that interest rates are unlikely to harden anytime soon, which again augurs well for the sector.”

Ankit Kansal, Founder & MD, 360 Realtors, says, “The RBI decision to keep the repo & reverse repo rates unchanged underpins the accommodative policy by the government alongside reining the inflation rate. This should have an overall positive impact on the recovering Indian real estate industry as an accommodative stance should plug in the liquidity crunch in the market. Likewise, managing inflation will control the cost.”

“It was an expected move by the RBI to keep the repo rate unchanged, and it is commendable that it is doing its part to ensure that the economy stays on the right path. Loan on LTV will be helpful for the real estate sector, and it will help them get a higher amount,” says Pradeep Aggarwal, Founder & Chairman, Signature Global Group, & Chairman – ASSOCHAM National Council on Real Estate, Housing and Urban Development.

Some developers believe that although the RBI didn’t cut rates, but there is still room for financial institutions to cut the lending rates. If done so, that will encourage homebuyers.

Amit Modi, Director, ABA Corp & President (Elect), CREDAI Western UP, says, “Even though the apex bank has kept the rates unchanged, but we believe that there is room for financial institutions to cut the lending rates for their customers. During the lockdown, the RBI had reduced the repo rate which failed to bring cheer to the market. However, the stagnant rates might have helped smoothen the economy to some extent, the benefits of which are yet to be fully passed on to the customers.”

All said and done, however, the realty sector also needs handholding by the government and the RBI to tide over this difficult period.

Nagaraju Routhu, CEO, Hero Realty, says, “The RBI’s commentary on the economy gives hope for revival of the real estate sector in the coming quarters. The sector, however, needs handholding by the government and the RBI to tide over this difficult period. Measures to boost liquidity for the sector are urgently needed. The optimism about economic growth cannot ignore the needs of the common man who is still in a ‘cautious spending’ mode. The good part is that the real estate sector is getting attention by the buyers as they have realized the safety of real estate asset, but they do look towards sops from the government that can help them in realizing their dream of owning a home.”

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