Rate cut expected to soften home loan rates, improve dipping home sales
Jan 29, 2013
Source : The Times Of India
NEW DELHI: Home buyers could be in for a cheer this spring as home loan rates are expected to soften after the Reserve Bank of India reduced its key policy rates.
Developers, bankers and consultants say this cut of 25 basis points in Repo rate and CRR by the central bank could give a boost to home sales across the country, which have been lagging over the last few quarters.

"The cut in Repo rate should definitely have a positive impact on lending rates. CRR cut will improve liquidity with banks that will now have a greater supply of loanable money leading to improved sentiment in the industry," said RV Verma, chairman of the National Housing Bank.

While there is an expectation that home loans might become cheaper for home buyers, the extent of reduction will depend on each individual bank.

High interest rates, insecurity about jobs and an overall weak market environment have all played their part in creating fear in the minds of home buyers. Home sales have dropped across cities in the last one year-14% in Bangalore, 32% in Chennai, 25% in Hyderabad, 10% in the NCR-and this has put many developers in a spot of bother.

Bringing down home loan rates could bring some cheer to home buyers and improve market sentiments.

"The announcement is most welcome although it is cautious. It is not surprising given the contraction in development and manufacturing growth. It should release funds into the market and mean relief for buyers hopefully," said Rajeev Talwar, group executive director at DLF.

The slowdown in sales over the last few quarters has increased unsold inventory at the end of the December 2012 to 602 million sq ft that would take up to 29 months to be sold at the current pace of absorption. In the previous quarter it stood at 545 million sq ft (22 months).

RK Jain, executive director at Wave Infratech said reduction in repo rate would help the real estate sector significantly. "We expect home loan interest rates to get cheaper, which will help the real estate housing demand among end users and investors," he said.

The RBI's policy is definitely a key to boosting real estate market sentiment and sending out positive signals to global investors, said Shobhit Agarwal, managing director - capital markets at Jones Lang LaSalle India.

Developer body Credai welcomed the rate cut but was unhappy with the quantum. "Though RBI has made a good beginning, the repo rate cut by 25 basis points is just not enough. What we need is the creation of a robust supply to curb inflation for which RBI needs to continue to ease fund supply position, month-on-month and quarter-on-quarter for the realty sector," Lalit Kumar Jain, president of Credai said.

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