Homes and gardens

Real estate sector waits

The Reserve Bank of India

The Reserve Bank of India  

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RBI decision to halt rate cuts hints at slowdown but home loan borrowers can look forward to a better deal in the coming months if the economic scenario improves. By Balaji Rao

After five consecutive rate cuts since early this year the Monetary Policy Committee think-tank has pressed the pause button. The Repo Rate (the rate at which banks borrow from the RBI to meet their short-term fund requirements) was maintained at 5.15%.

The repo rate is also considered as the ‘benchmark’ for deposits and lending rates across various types of loans, more so for housing loans.

With clear signs of economic slowdown and retail inflation levels inching up in the last few months the MPC decided to keep the rates unchanged. The growth projection of GDP, the economic growth barometer, was sharply cut down to 5% from the earlier projected 6.10% by the RBI.

Retail inflation is at uncomfortable levels of 5% which is a matter of botheration since RBI expects to maintain the levels between 3% and 4% through the financial year.

But the stance has been ‘accommodative’ which is quite heartening since this term would mean that if the economic environment improves in the coming months, the central bank may consider cutting rates. Lower rates are considered to revive economic growth since they motivate industries to plan for their ‘capex’ strategies and the real estate segment can access funds cheaply, that further motivates home loan seekers to invest in houses.

RBI is also concerned that banks and lending institutions are not passing on the full rate cut benefit to borrowers. But the banks are facing certain challenges to do so since they have to focus on getting deposits; low deposit rates do not inspire people to park their savings.

However, the RBI Governor was hopeful that the rate cuts done so far would be passed on in the near future since the effect of such rate cuts would take time to materialise.

Real estate is one segment that would always look forward to rate cuts, more the better since borrowing costs matter the most. With the segment reeling under stress over the last few quarters it would have been happy if there were to be at least another 25 basis points reduction.

If the home loan rates come below 8% the players are confident that home buyers would get their mojo and bring more buyers into the segment.

The need of the hour is to focus on the overall economic growth and once the green shoots start showing, the real estate segment too would benefit.

Home loan borrowers can look forward to rate cuts in the coming months since the government and the central bank are confident that economic revival is round the corner. It is recommended to choose the floating rate option.

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Printable version | Jan 21, 2020 5:27:25 AM | https://www.thehindu.com/life-and-style/homes-and-gardens/real-estate-sector-waits/article30213631.ece

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