Saturday, April 21, 2012: 01:31:03 PM

TJCD Trend

RBI rate cuts to spur property buying activity

The apex bank’s move would make home loans cheaper, improve business sentiments, leading to increased buying activity, opine experts

Indian real estate market is expected to witness improved market sentiments in the coming months, with the Reserve Bank of India’s (RBI) latest decision to cut key interest rates by 50 basis points (bps).

Industry experts believe that the apex bank’s move would make home loans cheaper, improve business sentiments, leading to increased buying activity, especially residential real estate sales. 
At present, interest rates on home loans are hovering at around 11%. Some experts consider that the rates are quite high for borrowers in the backdrop of high inflationary pressures.
For home buyers, the move is a big boost as home loans are likely to turn cheaper. Calculations show that a 25 bps cut could lower home loan EMIs by Rs 16 per Rs 1 lakh. RBI’s move will not only benefit prospective buyers, but also developers/realtors as they can get loans at cheaper rates and stop relying on private equity (PE) funds. 
Industry speak
According to Lalit Kumar Jain, national president of Confederation of Real Estate Developers' Associations of India (CREDAI), “With RBI lowering key policy rates, banks should act immediately and cut interest rates to facilitate both the home buyer and the developer community.”  
Om Ahuja, CEO (Residential Services) at property consulting firm Jones Lang LaSalle India, opined, “While the rate cut of 50 bps is definitely a ray of hope, this ray does not dispel the shadows nearly as much as may be initially supposed. It should be borne in mind that RBI hiked interest rates a total of 13 times between March 2010 and October 2011.”
“While this is understandable, given the ongoing concerns over inflation and excessive liquidity on the market, this spate of rate hikes has created a compounded problem for the residential real estate sector, whose effects are not easily dispelled. We do expect that there will be a marginal increase in home loan borrowings because of this positive move. That said, the series of hikes in the past have also affected the price that builders put on their properties, since their own cost of borrowing has increased,” he added.
On property price movement, Mr Ahuja noted, “It is unlikely that property prices will come down because of this rate cut, and it is the price of properties that is the decisive factor in residential real estate sales. In fact, it is likely that there will be an upward bias on property rates because of the anticipated improvement of sentiments with buyers who have so far been sitting on the fence, waiting for some signals of relief.”
Real estate buying slowed down last year, with many prospective buyers deferring their purchase decisions facing the double-edged sword of rising interest rates and stubborn price levels, indicated Anurag Mathur, managing director at real estate advisory firm Cushman & Wakefield India. Hence, RBI’s move would provide a positive boost to market sentiments and result in better real estate transactions this year, he added.
On a whole, RBI’s rate cut is seen as a positive development for the entire property market.

Jeeta Bandopadhyay

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