Housing Finance Interest rates may not fall

rbiBy Accommodation Times News Services

RBI in its regular exercise to control the economy have reduced Repo Rates. 

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

  • reduce the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect;
  • keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);
  • continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
  • continue with daily variable rate repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 7.75 per cent.

However, housing Finance companies and NBFC engaged in the housing finance business may not reduce it since it is indicative and not an mandate by RBI. In the past when in spite of RBI warning banks and NBFI to reduce interest on home loans, housing financier institutes have been keep it high to make greater profits. Though the Apex bank have relaxed Repo Rates on which banks can borrow from RBI, Banks are rich in funds and own funds and now ECB, can sustain at current level of Housing Finance interest. It is indirectly cartel to not to reduce housing finance interest.

Real Estate Industry though celebrating RBI move, in practice, the advantage may not be passed on to borrowers or even if it is passed , it will be negligible reduction in EMI. Or they will use it for phonic offers, may be for first two to three years for new clients only. 

The real estate industry welcomes the announcement of Dr. Raghuram Rajan,RBI Governor on a cut of 50 basis points in its repo rate as an excellent move said, Mr. Rajesh Prajapati, MD, Prajapati Constructions. 

 “This is a much needed rate cut by RBI. They cut repo rate by 50 basis points to a 4 year low of 6.75%. This move comes at right time and hope banks will pass on the benefit to customers immediately, especially as we are soon going to celebrate festive season of Dussehra and Diwali. We are sure it will stimulate demand for housing as EMI’s will come down.

 This is a rather pragmatic decision and we hail the reduction of risk weightage to housing sector. This has been long pending demand from the industry”, added Mr. Prajapati.

As opposed to the market’s expectation of a 25 basis points cut, the RBI has delivered an astounding 50 basis points reduction. With this, it has clearly abandoned its cautious baby-steps approach and assumed a bolder stance, obviously because the current economic fundamentals provide it with the room to do so. Given the magnitude of this step, I do not think any further rate cuts are likely in this financial year, especially since theRBI foresees a moderate growth in inflation rate in the interim months. For the affordable housing sector, the outlook is nevertheless bright, since the RBI governor has made provisions for lending to this sector to become less stringent and broader in scope. said Anuj Puri, JLL

Some of the industry reactions :

Mr. Rohit Poddar, Managing Director, Poddar Developers

This is a welcome and overdue move – however it will not be effective unless the banks pass on the reduction in repo rate to the home loan customer and also to the developer in the case of affordable housing. Both these rates have not come down in conjunction with the reduction in repo rates and there is still a large gap between the same. The large gap should not be used by banks to manage their NPA’s – defaulting promoters should be brought to book – and instead the reduction should be passed on to where is it actually intended and required.

Mr. Srinivasan Gopalan, CEO, Ozone Group

This is a great move by RBI which will hopefully dilute the negative sentiments. We are certain that this decision will give a boost to the realty sector and mortgages as they are a significant portion of sales. It will help the current government come closer to its agenda of ‘Housing For All’.

Mr. Rahul Saraf, Managing Director, Forum Projects

The revised repo rate brings in a wave of potential benefits for the economy. As developers we welcome this air of change and are hopeful of bridging the demand supply gap. This move will not only help developers initiate more projects at favorable capital but also create wider offerings benefiting home buyers.

Mr. Navin Makhija, Managing Director, Wadhwa Group

We welcome this decision of the RBI. We are hopeful that this move will enhance the purchasing power of the buyer, especially the fence sitters. Since investments in real estate are significantly done through loans, this will certainly ease the buying process and is a win-win situation for the buyer and developer.

Mr. Manoj Paliwal, CFO, Omkar Realtors & Developers

RBI’s move to cut interest rate by 0.50 per cent is a good but small move in the right direction.  The move will surely bring in the much needed fillip to the housing sector and economy at large. With this move we will see more and more fence sitters to start investing in realty projects. This move will no doubt infuse more liquidity into the system much needed for real estate sector.  Secondly, keeping in mind the mission of the government of housing for all by 2022, the move of the apex banks to reduce the risk weights on affordable housing applicable to lower value will also benefit the sector.

Kishor Pate, CMD – Amit Enterprises Housing Ltd.
The RBI’s big repo rate cut is encouraging, but definitely not a game-changer as yet. The cut in repo rate is magnanimous and bigger than expected, and surely make a difference in sentiment. However, there is invariably a lag between the directives given by the RBI with regards to lowering lending rates, and banks complying with these directives. Reduced lending rates are critical at this point, and the rate of loan purchases via home loans must pick up significantly to bring about a revival in the real estate market. This is especially true for cost-sensitive markets like Pune. The leading nationalized banks must proactively take up the initiative of aligning their lending rates to affordability, so that other banks will respond to the need to stay competitive and follow suit.
Arvind Jain, Managing Director – Pride Group
The latest revision in the REPO rate is generous and will certainly boost the sentiments surrounding the real estate market. If they follow the signals that the RBI has sent out, they will be able to offer loans at more attractive rates. Cheaper loans for home buyers will prompt a renewed interest in home purchase. Given that the RBI governor also intends to support affordable housing with less stringnent lending norms, the cost of funding for real estate developers active in this segment will also reduce. Real estate developers are definitely in need of a positive change in the lending environment,  since they have been battling massively increased development costs and have simultaneously been trying to keep property pricing within affordability.

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