Real estate in India is not an industry that operates in isolation. Its performance is influenced by multiple factors such as government policies, the economy, law and so on. The recent political and economic changes in India will augur transformations in the real estate industry as well.
The latest of these developments is the Reserve Bank of India’s (RBI) announcement of a cut in repo rate by 25 basis points.
A repo rate is essentially the rate at which RBI lends money to commercial banks in case of a shortfall in funds. RBI made this decision based on the reduction in inflation rates. While the effect is yet to reflect in bank offerings, interest rates are expected to hover around 8%.
Impact on real estate
Loans
When repo rates fall, commercial banks can pass on the benefits to their customers. This includes home seekers as well as developers. When the cost of funding is lower for developers, they will be able to launch more projects and complete them faster.
When home loan interest rates are lower for buyers, they are encouraged further to invest in a home.
Buyer sentiment
It has been a year of significant changes in the country. Demonetization, the Goods and Services Tax Bill (GST), the Real Estate (Regulation and Development) Act, and a soaring Sensex have significantly changed how the real estate industry operates.
Demonetization has pumped more cash back into the banking system and made greater transparency in financial transactions a possibility. This requires developers to be fair in their dealings, which is an encouraging sign for those who wish to purchase homes.
RERA has heightened the accountability required from developers in terms of project deadlines and other terms of sale. It has also mandated more transparency in sale processes.
Under GST, developers will enjoy input credit benefits on the construction materials purchased, which can then be passed on to buyers in the form of discounts and lowered prices.
Lower EMIs
Additionally, the drop in repo rate will lower equated monthly instalments (EMI) for home loan borrowers. This, in turn, will improve the market sentiment and boost sales.
Any fear in the recent past about a slowdown in the industry will now be allayed, and confidence revived once more in property investments.
On the whole, the RBI repo rate drop, along with the other changes, is expected to bring plenty of good cheer for developers as well as buyers in real estate.
This article is contributed by RoofandFloor , part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group
