Contact Us

Rate cut to boost realty sector

The Hindu Business Line, New Delhi

April 17, 2012


Buying a house has just got cheaper. With the RBI slashing the short-term lending rate from 8.5 per cent to 8 per cent, consumers can look forward to a reduction in interest rates on housing loans.

Real estate players also welcomed the 50 basis point cut in the rates saying it will boost liquidity in the market and improve their cash flow situation.

Also for consumers wishing to foreclose their loans, the RBI has asked banks not to levy pre-payment penalties on home loans especially on loans under floating interest rate plans.

Mr Brotin Banerjee, MD & CEO, Tata Housing, "The repo rate cut should translate into lower home loan rates for consumers. It would benefit home owners, boost consumption, investment demand and lead to a more positive market sentiment."

The last interest rate cut was in April 2009. Between March 2010 and October 2011, RBI had raised interest rates by 3.75 per cent through 13 consecutive rate hikes.

However, real estate consultancy Jones Lang LaSalle India believes that it is unlikely that property prices will come down because of the present rate cut.

Mr Om Ahuja, CEO, Residential Service, JLL, said, "We do expect that there will be a marginal increase in home loan borrowings because of this positive move. 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. 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."

The Confederation of Real Estate Developers' Association of India (CREDAI) said the prepayment penalty clause will add to the cheer. Mr. Pradeep Jain, Chairman, Parsvnath Developers Ltd and Chairman CREDAI said, "The RBI has removed prepayment penalty clause which is definitely going to cheer sentiments of buyers across sector."

On transaction activities, Mr Anurag Mathur, Managing Director, Cushman & Wakefield India, said the rate cut will result in some transaction activity in the residential sales markets and sale transactions volumes.

DLF, Unitech and Fire Capital said that the cash flow situation will improve significantly.