Prevailing lower home loan rates supported by the RBI’s policy rate stance, stable prices and attractive payment plans are aiding the translation of pent-up demand into sales. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021, they said.
For the seventh successive time, the Reserve Bank of India (RBI) on August 6 kept interest rates unchanged at a record low as it chose to support economic revival over inflation. The RBI Governor Shaktikanta Das said the significant reduction in lending rate on personal housing and commercial real estate sector augurs well for the economy, as these segments are also employment intensive.
The six-member Monetary Policy Committee voted unanimously to retain the main repurchase rate at 4 percent but was split on continuing with the lower-for-longer stance.
While announcing the third bi-monthly monetary policy review, he said, “The efficacy of RBI’s monetary policy measures and actions is reflected in the significant improvement in transmission during the current easing cycle. The reduction in repo rate by 250 basis points since February 2019, has resulted in a cumulative decline by 217 basis points in the weighted average lending rate (WALR) on fresh rupee loans,” he said.
Das also said that the reduction on lending rate has reduced the burden on households.
“In the credit market, transmission to lending rates has been stronger for MSMEs, housing and large industries. The low-interest rate regime has also helped the household sector reduce the burden of loan servicing,” he said
The significant reduction in interest rates on personal housing loans and loans to the commercial real estate sector augurs well for the economy, as these sectors have extensive backward and forward linkages and are employment intensive, he added.
The real estate sector welcomed the move
Had it not been for the pandemic, the RBI could have taken a different stance for the benchmark rates today. This is the seventh consecutive time that the RBI has maintained status quo, largely on account of the ongoing COVID-19 uncertainties, said real estate experts.
“The unchanged repo rate regime works well for home loan borrowers as the floating retail loan rates, which is directly linked to external benchmark repo rates, have been at the lowest level in the last two decades. The continuation of this low-interest rate regime supports the environment of affordability which has become the new hallmark of the housing market – during the pandemic, and even before,” said Anuj Puri, chairman – ANAROCK Property Consultants.
Niranjan Hiranandani, MD, Hiranandani Group and national president, Naredco, said that the “sentiment seems to be quite optimistic with recurrent accommodative stance by 250 basis point reduction in repo rate since February 2019 even in the wake of inflationary pressure. This signals market buoyancy with steady economic recovery; regained momentum in consumption in the wake of urban job stability is leading to increase in private spending.”
The policy normalisation and constant financial infusion are skewed towards healthy economic recovery with a positive GDP outlook pegged at 9.5 percent for FY 21-22. This will augur investment spurt and credit enhancement to the industry for an uptick in growth yield curve, he said.
“Increase in the retail home loans segment with less than 2 percent NPA is symbolic to the fundamental spur in housing demand that offers stability and security in challenging times. Further, the low interest rate will augment the home buying sentiment and facilitate financial cushion to log the deals in the backdrop of festive tailwinds. Also, if regulators can enhance credit supply to the stalled projects via permitting more SWAMIH funds; will go long way in resurrecting the prolonged sluggish real estate market and ensure customer delivery,” he added.
Harsh Vardhan Patodia, president, CREDAI National, said that the builder community is “optimistic that home loans will continue to be affordable, thereby propelling the growth of the housing segment.”
With states such as West Bengal and Karnataka recently announcing stamp duty waivers, this decision by the banking regulator will increase demand for affordable and mid-segment homes, boost new home launches and usher conducive market conditions for homebuying, said Piyush Bothra, Co-founder and CFO, Square Yards.
Citing the high inflation levels to be transitory in nature driven by short term supply-side constraints, the bank has also drawn attention to the promising high-frequency indicators such as consumption, investment and external demand which are regaining traction as the economy is opening up in a phased manner.
“Green shoots in the residential sector have emerged in tandem with the gradual improvement in the economic environment as businesses reopen. Prevailing lower home loan rates supported by the RBI’s policy rate stance, stable prices and attractive payment plans and schemes of developers are aiding the translation of pent-up demand into sales. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021,” said Samantak Das, Chief Economist and Head Research & REIS, JLL.
An extended period of historic low interest rates would ensure home loan rates remain at current benign levels and aid the revival of the real estate sector. “We have also seen many real estate developers refinancing their borrowings at lower interest cost and benefit from the lower interest rate regime, which is crucial at this juncture when business operations are facing the pandemic pressure,” said Shishir Baijal, chairman and managing director, Knight Frank India.
The decision of the RBI MPC augurs well for the real estate industry in general and home buyers in particular since the record low-interest rate regime would enable a large number of buyers to invest in property.
“Since homebuyer sentiment has already improved in recent times, based on an increase in housing affordability in India, the RBI move will prompt buyers and investors to put their money in secured assets like real estate. The extraordinary liquidity support the RBI has provided to the economy in the aftermath of the coronavirus pandemic is highly commendable,” said Vikas Wadhawan, Group CFO, Housing, Makaan and Proptiger.
Source : Money Control