Will developers and homebuyers benefit from recent Repo Rate cutbacks?
Authored by Sunny Katyal, Director, Investors Clinic The Reserve Bank of India has granted India’s property developers and buyers a lot of breathing room in terms of finances, thanks to the recent repo rate cutbacks. The current repo rates clock at 6.25%, after the much-needed 25bps slash this quarter. The move grants a lot of financial leeway to developers as they would have to spend less to finish a project; homebuyers also get to enjoy a modest decrement on their mortgages. The RBI was not expected to be this magnanimous, as there have not been any reforms with respect to the repo rates in recent times. However, this certainly bodes well for the real estate industry in India as liquidation prospects improve for developers and buyers. How do the repo rate cuts work out? Experts are of the opinion that the repo rate cuts are planned to work in tandem with the flexibilities planned by the Union budget, by design. This is aimed to help the economy by allowing improvement of liquidity among buyers and developers. However, none of this can help the real estate industry in the literal sense unless the banks curb their respective interest rates. The housing and office real estate domains can definitely flourish in terms of sales, once the loan rates become easier for the developers and buyers. The residential sector stands to benefit the most if this leniency is granted to the banks. Because if one recalls, the repo rates were hiked by almost 50bps, paving the way for the interest rates to be increased by a cold 5-7%. The repo rate cutbacks come as a welcome news in a scenario where the non-financial options such as NBFC’s have more or less stopped cooperating with developers. The real estate industry can still hope to ride the crest of the repo rate reforms and hope to grant better liquidity to buyers; developers who are unable to repay the NBFCs can also hope to capitalise on this boon. Money helps the industry breathe The real estate sector was cut off from fresh blood owing to financial bottlenecks. However, the repo rate reforms promise to show greener tomorrows. The banking systems are expected to witness a rise in the number of loan applications they receive on an average. The developers and buyers can benefit when the balance between the demand and supply is solidified by the liquidity. The buyers can also expect a once in a lifetime opportunity as all the income groups stand to benefit from the proposed reforms to the tax structure. A lucrative market for budget residential property The time is ripe for those hunting for the perfect budget residential property deal. The repo rates have remained fairly stable before taking a nosedive in the recent cutbacks; banks are looking to cash in on the opportunity and attract borrowers with attractive lending rates. Even a marginal rate can seek to influence the buyer sentiments. The income tax rebates also help soften financial perquisites for buyers in the middle-income group. The timing really cannot get any better for buyers in middle-income groups as the government has also extended the deadline for the PMAY scheme to March 31st,2020. One has to thank the forthcoming elections for the sudden loosening of the purse strings of the RBI.
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