Home Loan Rates likely to Severe

The Real Estate Market is demanding rate cuts, so that buyer’s affordability in purchasing a house improves. Any rate cut is likely to help in reviving the real estate market. This is also likely to help other sectors of the economy to improve their performance.

As RBI has not cut rates the real estate sector is disappointed, but bankers say interest rates on home loans are likely to drop in the near future, as the liquidity in the banking system has improved.

Real Estate prices in real terms after adjusting for inflation are expected to come down, RBI's governor Raghuram Rajan said.

“The value of properties should increase in a growing economy, but the housing data suggests that with inflation rate at 7% to 8%, prices are coming down in real terms and becoming more affordable as wages are going up,“ RBI's governor Raghuram Rajan said.

Despite this favorable observation by the RBI governor, the central bank continued with the existing high benchmark interest rates signaling banks to continue with tight liquidity policy to contain retail inflation to around 6%.

But, the good news is that many bankers are of the opinion that despite RBI's decision not to cut rates, interest rates on home loans are likely to soften in the near future, as the liquidity in the banking system has improved.

Real estate association CREDAI's president (Elect), Getamber Anand, expressed his disappointment at the RBI's decision to not cut interest rate. He said that a cut in interest rate would have helped revive the economy.

In fact, in the past seven years, RBI continued to believe that real estate prices were soaring and it was a bubble in the making. Because of this, RBI discouraged banks from lending to the real estate sector. With the economic indicators being stable and inflation coming down, a rate cut would have attracted more buyers to the sector during the festival season. We believe that it is only a matter of time before home loan rates come down giving further boost to consumer sentiments and real estate demand. However, in the near future, the RBI governor hinted at lowering rates if the macro conditions permit, which would boost the market sentiments.

RBI has decided to maintain its status quo on key policies, though lowering the interest rates would have acted as a catalyst to boost housing demand. As anticipated, with the change at the political front and onset of festive season, positive sentiments are seen in the market and lowering the rate of interest would have encouraged homebuyers further. The decision to have stable policies will be beneficial in the long run but keeping in mind the current moderate demand in the market, a small cut in the rate of interest would have made a big difference.

The decision of RBI to keep the interest rates on home loans unchanged has dampened our hopes, as the interest rates in the last quarter were also not touched.

But this time the expectations from RBI was that keeping in mind the growing positive sentiment in the real estate sector, the reduced rates on home loans would have given impetus to the existing upward graph of the positive sentiment being shown by home seekers ever since the new government assumed office at the Centre.

Raghuram Rajan, however, is not overtly concerned about the high property prices. “Buyers' cash down payment of 20% while purchasing a residential unit provides enough cushion to the bank's loan”, he said.

Raghuram Rajan said the appreciation in property rates is in tandem with the inflation in a majority of cases, and added that the RBI is not concerned about the lenders' perspective because there is an equity component which home buyers get in while getting a loan.

In the view of high property prices Haryana Govt. has also taken a step. Haryana Govt. is intended to encourage the planning and completion of Group Housing Projects on Sohna road wherein apartments of pre-defined size are made available at pre-defined rates within a particular time-frame. All such projects shall be required to be necessarily completed within predefined time frame from the approval of building plans or grant of environmental clearance, whichever is later. The licenses shall not be renewed beyond the said time period from the date of commencement of project.

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