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No rate cut a let down for realty in Mumbai

Interest rates on home loans and EMI’s will stay the same, with the Reserve Bank of India on Wednesday keeping the repo rate unchanged.

mumbai Updated: Dec 07, 2016 23:07 IST
Naresh Kamath
Builders and realty experts hoped there would be a reduction in interest rates of home loans to ease the stress caused by Centre’s demonestiation decision
Builders and realty experts hoped there would be a reduction in interest rates of home loans to ease the stress caused by Centre’s demonestiation decision(HT File Photo)

Interest rates on home loans and EMI’s will stay the same, with the Reserve Bank of India on Wednesday keeping the repo rate unchanged.

Builders and realty experts hoped there would be a reduction in interest rates of home loans to ease the stress caused by Centre’s demonestiation decision. While the RBI kept the rate unchanged at 6.25 %, it was hoped that there would be a reduction of 25-50 basis points (bps).

The repo rate is the interest that banks pay when they borrow money from the RBI to meet short-term fund requirements. Cuts in this rate means commercial banks will pass on the benefit to the people. Experts in Mumbai called it a let down for the realty sector, already facing a massive slowdown with units staying unsold for months.

“A rate cut would have been encouraging. It is disappointing the RBI decided against it. We were expecting a 25 bps cut, which could have given the sector a boost,” said Shishir Baijal, chairman & managing director of real estate consultancy firm, Knight Frank.

“Lowering the repo rate would have provided a strong thrust to the sector,” said Anshuman Magazine, chairman (India and South East Asia), CBRE, another consultancy firm.

The Maharashtra Chambers of Housing Industry (MCHI) said a low interest regime is the need of the hour. “The economy and the real estate industry need revitalisation and a low interest regime will greatly help boost the overall sentiments of the economy. We are hopeful once the process of demonetisation gets over by end of the year, there will be a major interest rate reduction of 50 base points in the next credit policy review,” said Dhamesh Jain, President, MCHI.

In the last few years, the RBI has imposed stringent lending conditions, such as only 80 % loan disbursal allowed for home loans. There has also been constant hikes in interest rates.

The realty sector has been facing a slowdown as builders have jacked up prices, and multiple taxes and premiums have reduced the scope to bring these prices down. Stringent home loan conditions and high interest rates have forced homebuyers to postpone buying.

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