Money & Banking

Doors open up for home-buyers

Varun Aggarwal Mumbai | Updated on February 07, 2019 Published on February 07, 2019

Home-ownership set to get cheaper

If you have been holding on to your decision to buy a dream house for a while, this could be the perfect time as the RBI move to lower interest rates by 25 basis points could make home-ownership cheaper.

“Reduction of repo rate by 0.25 per cent, and change in policy stance to ‘neutral’ by the RBI, will boost investment sentiments in the economy and add momentum to growth impulses in the interim Budget 2019-20. The consequential reduction in EMI burden for the consumers should pep up housing demand further,” said Jaxay Shah, National President, CREDAI.

An added bonanza

The RBI’s decision to slash the repo rate by 25 basis points to 6.25 per cent is an added bonanza for the real estate sector, which received a lot of doles during the interim Budget a week ago. The government allowed for capital gains benefits on two properties instead of one, and tax from notional rental income from the second property was removed. For developers, the government extended the notional rental income from unsold property to two years instead of one year.

“We believe that investors are likely to regain interest in the real estate sector because the country will continue to grow, thus positively impacting the growth of the industry,” said Sanjay Dutt, MD and CEO, Tata Realty. “The changing stance of the RBI from ‘calibrated tightening’ to ‘neutral’ gives the sector the boost it had been hoping for a while now.”

While unsold real estate inventory levels have improved in the past one year, it still stands at a whooping 6.73 lakh units, as on December 2018, according to Anarock Research. Thus, the new measures come as a big respite. “Rate cuts give a substantial push to property buyer sentiments, and it was certainly high time for such a cut. Home-loan interest rates increased by as much as 5-7 per cent in the last one year because the RBI hiked its repo rates by 50 basis points over the same period. In other words, home loans had become a more expensive proposition,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

The challenge, however, remains with the liquidity crunch that NBFCs are facing, which has squeezed funding for several real estate projects. Experts feel the interest cut will help boost NBFCs, but more needs to be done.

“The real estate market does not depend only on marginally-improved buyer sentiment – there are larger issues that hold the sector hostage right now. The liquidity issues after the NBFC crisis are a bigger concern. NBFCs and HFCs have seriously curtailed disbursements to developers. Moreover, the repayment capabilities of many developers are also in question,” said Puri.

Published on February 07, 2019

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