For the fourth time in a row, the Reserve Bank of India has cut the repo rate, this time by 35 basis points. The real estate sector expect that this will provide a positive boost to the home buying sentiment and rate cuts will guarantee affordability in terms of home loans and thus lowered EMI.
Developers say that the repo rate cut will help them get more customers. Ashok Mohanani, Chairman, EKTA World and Vice-President of NAREDCO Maharashtra, says, “ It will definitely spur growth for the real estate sector specifically. Rate cuts will guarantee affordability in terms of home loans and thus lowered EMI, lower GST, tax discount for the middle class as per the interim budget. Furthermore, we are also hopeful that the financial institutions will reduce the interest rates on construction finance. All this will give some sales momentum to real estate.”
Some developers claim that this will help uplift the sector which is facing a slowdown. Farshid Cooper, MD of Spenta Corporation, said, “In order to curb the ongoing NBFC crisis, RBI has further prioritized the housing sector lending to Rs 20 lakh from Rs 10 lakh per borrower. The rate cut has sent a strong indicator to domestic banks to cut lending rates before the festive season kicks off which might prove to be beneficial to the sector.”
However, this rate cut, even if adequately transmitted by banks, will not do much for mid-income housing in tier 1 cities where the main concern is unaffordable property prices and not interest rates, says Anuj Puri, of Anarock Property Consultants.
“For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier 2 and tier 3 cities, where property prices are less prohibitive, may see an uptick,” said Puri.
